Do I need to charge UK VAT when exporting outside the EU?

Today, consumers’ behaviour has changed and an increasing demand for goods is putting pressure on haulage companies. This demand weighs heavily on transporting these goods quickly, in large quantities and from countries of origin that can be far away, all whilst keeping the cost low. The complexity of supply chains are expanding, and logistic solutions are evolving as companies interact with customers providing one click of a button, simple solutions. Well managed supply chains across the border and out of the European Union are now separating successful businesses from another; arguably the most important factor is costings and that includes Value added Tax (VAT).

One recurrent question that the following is attempting to respond is: Do I need to charge UK VAT on customers outside the European Union (EU)?

Rules for EU Exports

From a business to business point of view if your business chain of supply includes the delivery of goods to another country you generally need to charge VAT. However, you can zero-rate goods supplied to an EU based customer who is registered for VAT. Although, if your goods are sold to an EU based customer who isn’t VAT registered, you must charge, VAT at the normal rate. These sales and distributions of goods to a country inside the EU are called ‘dispatches’ or ‘removals’.

However, in the following we are more concerned with ‘Exports’ that are defined as the sale of goods made to a country outside the EU. For a business where the supply chain includes countries outside of the EU, a further set of VAT rules apply.

It is important to note that a company would not have necessarily been affected by VAT on all exports. For the last few years rules have been very ridged yet companies are often tip toeing around a minefield of VAT rules and regulations. What to do or What not to do? That is the question. One thing remains, just as TAX doesn’t always have to be taxing, then VAT outside of the EU doesn’t have to be vexing!

Non-EU Countries Documentation

The export of goods to countries outside the EU are called exports to ‘third countries’. One of the main documents needed for such export is an invoice. Invoices can be either Commercial (used for goods sold abroad) or Pro-format (used for gifts and samples). Then to trade internationally an EORI number registered with customs is needed. Additional documentation might be required according to the destination of the type of goods. As the exporter other potential original documentation such as Certificate of Origin, EUR1 forms, ATR certificates and CITES certificates may be required. It is reassuring to know that the Export Control Organisation (ECO) can further assist with the export enquiries.

Other essential components of international export are commodity codes. They are international codes that ensure goods are accurately classified. They are used on shipping documents and determine if an export licence is required or not. These codes are required for all ‘third countries’ exports. They not only classify the goods but determine which tax rate will apply to these goods.

Usually a shipping company will assist with documents to submit to HMRC such as Export declaration to allow products being shipped from the UK, import declaration in the country of destination for custom clearance at the destination port. Shipping documentation will indicate if a business has a licence number or be marked as no licence required.

A small business can be lost in all these red tape and documentation to comply with. However not having the correct paper work, or having the correct paper work but not completed correctly can create delays in deliveries.

It is common practice and in their best interest that some shipping companies offers help with the international jargon and documentation. A correct invoice is needed with clear information to pass each stage of the journey swiftly, thus making the invoice a very important document.

VAT on Exports

For goods that are exported from business to business outside the EU, VAT is not charged. Although in this instance you can zero-rate the transaction within your company. However, you must keep evidence of the export, and it must fall in line with all other export laws. It is important to note that you cannot zero rate a sale if your non-EU customer asks for the goods to be delivered to an UK address. Additionally, to make things a little more confusing, VAT could be applicable if the customer arranges to collect goods directly from your trading premises as this is classed as an indirect export. Within an indirect export you are able to zero-rate the sale by meeting specific zero-rating conditions. Knowing and applying some small rules can means a lot to small businesses and can even make or break a company trading internationally. Applying the zero-rate rule can assist a company in its effort to remain competitive in today’s global market-place.

Zero-Rating

So, What is zero rating? Well, if you are wondering, zero-rated goods are products that still require VAT to be included but the rate of VAT the shipping company must charge is 0%. Even though they represent 0%, it is very important to note that businesses must record zero-rated transactions within their financial report. To be eligible for the export of goods at zero-rate some conditions must be met. These conditions include the maintenance of good standard practice, for instance record keeping of evidence for transactions to prove a business entitlement for zero rating. Another condition will be working within a specific time limit that is a time-frame under which goods must be physically exported outside the EU. Note that as an EU business you cannot zero-rate an export where you deliver goods to a customer’s address in the EU, or allow for the goods to be collected by or on behalf of your customer even if it is claimed they are for export immediately following the collection, VAT must still be applied. Rules governing exports varies from countries to countries so it is worth being aware of those for your target destination, export documentation will accordingly need to also be accurate and duly completed.

If additional information on VAT and export can be gathered from UK government agencies, your shipping and delivery operator is often a starting point in the process. They often have a system and documentation in place to follow, that takes into account what is required in order to export. Note that it is in the interests of the companies shipping and delivering your goods to make it easier for you as a valuable customer, however it is your duty as a business to be fully aware of what documentation and VAT you are responsible for.

Exporting outside the EU is today made possible to any businesses. The increase in online shopping, made it possible to trade internationally pretty much instantly, haulage companies needs to adjusts to an increasing demand from small businesses in need of international delivery services. Offering information and signposting businesses appropriately on issues such as documentation and VAT is now part and parcel of any delivery operators.

If you would like information on where DMG Freight Services haulage services, call us on 01279 452468