UK Proof of Export for VAT

Latest update: 21 February 2024

Proof of Export for VAT is a challenging area for many exporters. It is part of the export customs compliance requirements. It is critical because a proof of export is one of a set of conditions for zero-rating export VAT. Without a correct proof of export, exporters must therefore charge VAT on their export invoices. The quality of the evidence is central to the requirement. If the evidence is considered unsatisfactory during a customs (or VAT) audit, the exporter will become liable for the VAT due and a customs penalty may be applied.

What are the conditions to zero-rate Export VAT?

There are 2 main conditions to zero-rate export invoices: time-limit and documentary evidence.

A supply of goods sent to a destination outside the UK is liable to the zero rate as a direct export where:

• The goods are exported from the UK within the specified time limits.
• The trader holds official, commercial and supplementary evidence of the export transaction as appropriate within the specified time limits.

Time Limit: document deadline for the Proof of Export for VAT

One of the conditions for zero rating VAT for (direct) exports is time limit. Not only the goods must be exported within a time limit, but the evidence must also be collected within a time limit. The time limit is triggered by the time of supply.

• The time limit for exporting the goods from the UK is 3 months from the time of supply.
• The time limit for collecting evidence is 3 months from the time of supply.
• There is an exception for goods involved in processing or incorporation prior to export. The time limit is 6 months for the exporting of the goods and for collecting evidence.

If the trader does not hold the correct export evidence, within the appropriate time limits, then the goods supplied become subject to VAT at the appropriate UK rate.

Documentary Evidence: Proof of Export for VAT

Exporters must hold 3 types of documentary Proof of Export that must be kept as evidence that the goods have been supplied for export and can therefore be zero-rated.

• “Official evidence”: the primary evidence is the export declaration from HMRC system (CHIEF/CDS). This is the most important evidence, however, sometimes it is difficult to obtain. In particular in Ex Works orders.
• “Commercial evidence”: document showing that the goods have been physically exported such as authenticated sea waybills, consignment notes…
• “Supplementary evidence” In addition to the “official” and/or the “commercial” evidence, traders must also keep what is called “Supplementary evidence”. Under this description you’ll find all internal documents supporting the transaction such as order, contract, packing list, payment… The supplementary evidence is part of the audit-trail of a customs process and must demonstrate that the transaction was real and the export/sales has taken place.
• Generally, both “Official” and “Commercial” evidence have equal weight. However, if the commercial evidence is unclear or lacking sufficient details, HMRC will request the official evidence.

Documentary Evidence: Timing, Accuracy, Correctness and Authentication – Learnings from Ripley

In a case (H Ripley & Co – TC09067), the tribunal upheld a decision by HMRC to deny H Ripley’s claim to zero-rated output tax in the sum of £1,176,161.00 for 72 exports on the basis that H Ripley had not provided satisfactory evidence of export. 

Although a pre-Brexit transaction, this case provides numerous insights. 

The Ripley case reminds us of the requirement for accurate, complete, and authenticated documents.

Ripley had plenty of documents as Proof of Export indeed, almost 3000 pages of them including invoices, weighbridge tickets, ferry boarding passes, WhatsApp messages, e-mails, CMRs… The problem was the content and quality of these documents.

The case reports a transaction that is particularly interesting to explore. It describes a road transport document (CMR) that lacks essential information (at 134, 135 & 136).

• Box 23 provides for the “Signature and stamp of the carrier”: unidentified signature but no carrier stamp.
• Boxes have not been completed and are blank:
  • Box3 – Place of delivery of the goods.
  • Box 4 – Place of delivery of taking over the goods.
  • Box 16 – Carrier.
  • Box 17 – Successive carriers.
  • Box 24 – Goods received with space for insertion of the place and date and Signature and stamp of the consignee.
• The name stated as the consignee “was not the destination of the goods but the name of a freight provider”.
• None of the CMRs were fully completed by the haulier and signed by the receiving consignee.

At Alegrant, when we conduct external review we pay a particular attention to the quality of the documentation. The thoroughness of document checks and record-keeping is often an indicator of the expected level of compliance. Accurate documents provide us with a reliable audit trail, allowing the review and verification of the details of past shipments. This is invaluable for internal audits and expedite compliance checks.

However, we always find surprises when checking the accuracy of the documentation. The quality of documents seems to vary depending on the industry. The worst sectors, in our experience, is the Oil & Gas industry. At times, it is nearly impossible to determine the nature of the goods from the paperwork alone!

Documentary Evidence: Quick Checklist

To meet the Proof of Export for VAT requirements, checking the accuracy of transport documents is crucial to maintain compliance. Here are a few important information to check:

• The supplier of the goods.
• The shipper.
• The customer
• An accurate and full description of the goods. Vague descriptions of the good are not acceptable. This can be particularly challenging when descriptions on invoices are coming from ERP inventory systems. Parts might have been created by the engineering or procurement departments with acronyms and abbreviations perfect for internal use. However not suitable for an export invoice. This practice is widespread in some sectors such as the Oil & Gas industry.
• Accurate quantities. It is worth noting that in some cases the unit of measure is necessary. For instance, 500 shoes or 500 pairs of shoes.
• Accurate and consistent value of the good. Customs valuation can be a complex area as a series of costs can be included or excluded from the customs value. It is particularly challenging for hire/rental operations and businesses with a Transfer Pricing policy.
• The export destination.
• The place of the delivery of the goods.
• The mode of transport and route of the export movement.
• The signature of the document
• The authentication of the document in case of a transport document (Bill of Lading, Airway Bill, CMR…). For instance, International Consignment Note/Lettre de Voiture International (CMR) must be fully completed by the consignor, the haulier and the receiving consignee, or Freight Transport Association own account transport documents fully completed and signed by the receiving customer.

Do you face a specific challenge with your own transactions?

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Obligations are transaction specific

Customs regulations are “transaction specific” so there are different obligations depending on the type of transaction (inter-company, direct or indirect export…), on the type of transport and transport document, the destinations….

How to correct an error?

If the goods are not exported or if traders do not have evidence of export, they will need to adjust their VAT records.