New VAT trap for exports to private customers

In the flood of rule changes and practical challenges affecting exporters since the UK left the EU’s VAT and customs systems at the end of 2020, some may have missed a subtle change to HMRC’s policy concerning the VAT treatment of goods exported from the UK by private customers. 

The export of goods is generally zero-rated for VAT purposes, provided the exporter retains documentary proof that the goods have left the UK. The most common example of this is a ‘direct export’, where the UK vendor arranges the shipment of the goods to an overseas customer and obtains evidence of export (such as a customs declaration, bill of lading or CMR note) from their freight forwarder.

However, HMRC also permits the zero-rating of ‘indirect exports’, where the goods are collected and removed from the UK under the control of the overseas purchaser. Provided the UK exporter obtains valid official or commercial evidence of export from the purchaser within HMRC’s time limits (usually three months from the time of supply of the goods), the sale can still be zero-rated. In these circumstances, the UK exporter often charges VAT on deposit at the time of sale then refunds it to the customer once proof of export is received. 

From 1 January 2021, this VAT relief is restricted to commercial sales only. HMRC no longer allows zero-rating of indirect exports where the customer is a private individual: VAT is due in those circumstances, even if the seller holds proof that the goods were exported from the UK. The only way to secure the zero-rate on exports of goods to private individuals now is to make a ‘direct export’ where the shipping is arranged by the UK vendor. Not only has this change removed a great deal of flexibility over how to organise future sales of goods to overseas customers, many vendors may be at risk of VAT assessments from HMRC on goods exported since the start of 2021. 

HMRC’s new policy was implemented by some largely unheralded amendments to its Public Notice VAT on goods exported from the UK. While HMRC specifically drew the new rules to the attention of larger retailers, this change coincided with the end of the Brexit transition period and has undoubtedly, for many other exporters, been lost in the noise of the hundreds of VAT and customs changes HMRC made to its public notices and guidance on or around 31 December 2020. 

Indirect exports to private customers may arise in a number of scenarios. For example, an overseas customer who visits the UK to buy household furniture from a UK retailer who does not deliver to their country, may wish to organise the collection and shipping of the goods themselves. High value goods bought by overseas individuals at auction are another example of goods that usually shipped from the UK under the instructions of a private customer rather than the vendor. 

Any UK business whose goods are exported under the control of a private customer should review its VAT position and export processes if it hasn’t already done so.