Imagine your business is based in the UK and registered for VAT. You have the chance to make a quick profit on some goods that are stored in Ireland. You will buy them from an Irish business for £3,000 plus 23% Irish VAT of £690 and sell them for £5,000 to a private individual there – the goods never leave Ireland. What is the VAT position?
Three VAT myths
There are three important myths to dispel with this scenario:
Myth 1: Sales are less than the Irish registration threshold
You might think that Irish VAT is not relevant because the £5,000 sale is below the Irish registration threshold. You are wrong: an overseas business does not get a registration threshold in another country – only its own. The threshold for a non-Irish business making sales in Ireland is ‘nil’.
You might decide that Irish VAT is not an issue because you have no ‘fixed establishment’ or ‘business establishment’ in that country – in other words, no head office, warehouse or trading premises. This is also incorrect: VAT registration depends on whether a business is making taxable supplies of goods or services in a country – it doesn’t need to be established there.
Myth 3: Can claim the VAT paid to the seller from the Irish tax authorities
You may conclude that you don’t need to register for Irish VAT but can still reclaim £690 VAT from the Irish tax authorities by submitting a 13th Directive claim; the system for a non-EU business to claim VAT paid in the EU. A successful 13th Directive claim would mean your profit is £2,000 – life is looking good.
Import of food
Jota Jota Alimentos Global SL is a food company based in Spain. For one particular shipment, goods purchased from South America came into the UK before going to Spain. The only reason for this arrangement was because it was the quickest transport route.
VAT of £8,456 was paid when the goods arrived in Tilbury and the company reclaimed this VAT from HMRC’s Overseas Repayment Unit, which was rejected. It was an 8th Directive EU claim, rather than 13th Directive non-EU claim, because it happened in 2018.
HMRC reasons for rejection
HMRC said that JJAG was “importing goods into the UK and then selling the goods on from the UK”. The correct outcome would have been for JJAG to register for UK VAT, claiming input tax on the import of the goods, and then making a zero-rated onward supply to its premises in Spain. The transfer of ‘own goods’ from one EU country to another is a ‘deemed supply’ under EU law.
I was surprised that the taxpayer won the case; the refund claim was correct and there was no need for JJAF to register for UK VAT. The judge concluded that the entry into and out of the UK was “no more than part of the transit arrangements in order to ensure fast delivery to JJAG in Spain”. The business was not making taxable supplies in the UK.
The circumstances in JJAG were very unusual, that is not the case for the Irish case study. There is only one correct outcome here; the UK business must register for Irish VAT and pay output tax of £934.95 on an Irish VAT return (£5,000 x 23/123) and claim input tax of £690 on the purchase of the goods. It has still made a healthy profit of £1,065.05.
It’s understood that 19 EU countries require a non-EU business to appoint a local tax representative if they register for VAT there, but fortunately Ireland is not one of them.
These issues are very relevant for many businesses in the post-Brexit world, especially when deciding if they need register for VAT in the EU or vice versa.