Proof of Export for VAT is a challenging area for many exporters. HMRC new guidance is a welcome clarification for UK exporters in particular on the quality of the evidence required for zero rated export.
Why is the Proof of Export for VAT important?
Proofs of Export 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. If the evidence is considered unsatisfactory during a customs audit, the exporter will become liable for the VAT due and a customs penalty may be applied.
What are the types of “Proof of Export”?
There are two types of Proof of Export that can be use as evidence that the goods have been supplied for export and can therefore be zero-rated.
- The primary “official” evidence is the export declaration. This is the most important evidence, however, sometimes it is difficult to obtain. In particular in Ex Works orders.
- The “commercial” evidence showing that the goods have been physically exported such as authenticated sea waybills, consignment notes…
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.
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.
What is an accurate “commercial” evidence?
If the export declaration (the official evidence) is not available, then a commercial evidence can be acceptable as long as it contains an accurate description of the exported goods such as:
- 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 mode of transport and route of the export movement.
Obligations are transaction specific
Customs regulations are “transaction specific” so there are different obligations depending on the type of transaction (inter-company, direct of 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. To get help with VAT compliance, speak to a VAT specialist at Bevan VAT Consultancy Ltd, Hilary will help you meet your obligations.
There’s no cost to exploring options and solutions. Get in touch at email@example.com to discuss how you can bring your operations in line with export VAT compliance requirements.
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