Drop-Shipping

[hanobaby]

Dear Marie,

I’d appreciate your input on the following scenario:
1) UK customer (‘A’) orders goods from a UK entity (‘B’). ‘B’ places the order with a Chinese supplier and requests that the goods are drop-shipped directly to ‘A’. Both UK entities are VAT registered. ‘A’ pays the import duty and VAT.

Question:
When ‘B’ invoices ‘A’ do they have to charge VAT? If so ‘A’ would have been charged VAT twice, once on the import, which they can claim and again from ‘B’.

For VAT to arise in the UK there has to be a taxable supply of goods or services made by a UK VAT registered entity in the course of their business. Does the above UK transaction fall in to this definition?

It would make sense for ‘B’ to import the goods.

Many thanks.

[Marie Stein]

Hi Hanobaby

In principle, the answer would be no, B would not have to charge VAT to A if A imports the goods.

UK VAT is chargeable either on a supply of goods or services made in the UK. It’s also chargeable on imports of goods and certain services into the UK.

So you have to establish whether a supply of goods is made in the UK. See section 4.8 of VAT Notice 700 which explains the place of supply rules. http://tinyurl.com/6g5884w

A supply of goods is made in the UK if the goods are physically located in the UK when they are supplied. A supply is regarded as made outside the UK if the goods are physically located outside the UK when the goods are supplied. In that case, UK is only due if and when the goods are imported into the UK.

So in the situation you describe, B would not charge VAT to A, but A would pay import VAT when the goods arrive in the UK from China. A can reclaim the import VAT on its VAT return under the normal rules as set out in VAT Notice 702: Imports.

Marie

[Author]

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