The Upper Tribunal (in H Ripley and Co) recently found in favour of HMRC in a dispute about whether the business held sufficient evidence to support applying the zero-rate of VAT to its export sales – leading to an assessment for over £1m of VAT being upheld.

The taxpayer sought to argue that the reality of whether the goods had left should be the relevant question. The evidence that it held of the export appeared to convince the court and HMRC that there wasn’t any real doubt over whether items had left the UK. Despite this, the courts found that the evidence of export was not aligned with the relevant HMRC policy, nor obtained within the required period.

In coming to this conclusion, the tribunal considered that evidence, which might usually be regarded as valid in a commercial environment, was not relevant for these purposes. Evidence of payment for the goods by the customer was ignored as it did not prove receipt of the goods outside the UK. Ferry documents were dismissed on the basis that the information couldn’t be matched to individual transactions. In addition, transport documents which had been completed by the hauliers and recipients of the goods were not completed and thus were dismissed.

Not only were these items dismissed individually, but the court was also alerted to the fact that totality of the evidence of commercial arrangements was consistent. The tribunal refused to accept that this should be persuasive. Instead, it focused on the evidence required for each transaction and rejected the global approach suggested by the business.

The addition of VAT to exports that would ordinarily be zero-rated can create a real cost within the supply chain as it would be rare for an offshore customer to accept a UK VAT charge on exported goods. Unfortunately, our experience is that this is an area where we have seen HMRC take a strict approach, particularly since the UK left the EU.

In some cases, businesses may not be able to provide sufficient evidence on request (even though it is provided at a later date). This might give rise to interest and potentially penalties on the VAT due. In our experience, it is practically difficult and time consuming to retrospectively gather evidence, and so, it is critical to maintain contemporaneous records with strict controls over exported items and a clear understanding within both the finance and supply chain function of the required evidence.