VAT and Export Trading
VAT on any goods you export must be properly accounted for in your business’s own accounts, and on the paperwork that accompanies each of your international consignments. Trading with European countries that are members of the EU have a different VAT regime to countries outside of the EU. Countries that are outside of the EU are called ‘third countries’. A general overview of how VAT is handled within and outside of the EU is in the HM Customs & Excise (HMRC) Notice 725 that is available to download from the HMRc website.
VAT and International TradingGoods that your business will export to another EU Member State will usually have a zero rate of VAT. When you move goods to another EU Member State this isn’t called an export, it is called a removal. Note that even if no VAT is payable on the goods you export, all transactions that your business carries out as part of its international trading must be recorded. It is vital to ensure the goods you export are zero rated for VAT purposes. If you are not sure call the HMRC enquiry line for assistance on: 0845 010 9000.
Even if there is no VAT payable (as with zero rated goods) the transaction itself must still be recorded on your VAT return. This shows HMRC that your business has properly accounted for the VAT on the goods you have sold to your international customer. More detailed information is available on the HMRC Notice 703 that is available on the HMRC website.
VAT and None VAT Registered ExportsWhether your business has to charge VAT on the goods it sell to an international customer will depend on if the customer is registered for VAT. If you are selling to a company that isn’t registered for VAT, then you must charge VAT as you would to a customer in the UK. If your international customer is registered for VAT, you don’t have to charge VAT on your export if your goods meet certain criteria:
- Your customer is based in one of the EU Member States
- Documentation and evidence of the goods you are trading are properly recorded
- Your VAT number is shown on all invoices and export documents
VAT Documents and PaperworkIf your business intends to export goods to an international market that is outside of the EU, VAT must be accounted for with each sale. You will need to complete box 8 of your VAT return to indicate which goods have been sold outside of the EU. Your business is also required to send to the HMRC a list of any suppliers of goods your business has a relationship with that are within the EU. The EC Sales List (ECSL) Service enables your business to submit your lists electronically. More information is available on the HMRC website.
Also, if your business sells more than £260,000 of goods to EU countries, you must complete and submit an Intrastat declaration. The information on this form is used by government to compile trading statistics.
It is important that your business understands how your export goods are rated for VAT to ensure you don’t pay too much VAT. Accurate records of your international trading of goods that are either eligible for VAT or zero rated for VAT must be recorded. As a minimum your business should record the following information about your exports:
- What goods you are exporting
- The value of your exported items
- The customer and destination of your exports
- The type of transport and route your exports will use
- Your business’s details including your TURN (Traders Unique Reference Number) number
NES, CHIEF and NCTSSeveral electronic systems have been developed to help international businesses handle their exports. The system your business will come into contact with the most is NES or National Export System. This is used to log all exports that are sent to a third country. NES is part of a larger electronic system called CHIEF (Customs Handling of Import and Export Freight).
Lastly, your export business will also use NCTS (New Computerised Transit System) to complete the transportation documents (Single Administrative Document (SAD)) and the TAD (Transit Accompanying Document) that should accompany all of your international consignments to their final destination.