VIT44400 | Specific issues: Toll Operators

Only the person to whom the supply was made for use in the furtherance of his taxable business can make a valid input tax claim. This is a fundamental principle. It overrides the question of who may have paid for the supply. It also overrides the question of who may hold the relevant invoice or other evidence where the representative or agents made payments on behalf of the principal.

Import VAT may only be claimed by the owner of the goods who as importer of record would be entitled to reclaim the import VAT either in accordance with s24 VATA 1994 (if registered for VAT in the UK) or under part XXI of the VAT Regulations 1995 (SI 1995/2518) if they are not registered for VAT in the UK, provided they satisfy the legislative conditions.

HMRC is aware of incorrect treatment by businesses whereby import VAT has been incorrectly deducted as input tax by non-owners of the goods. This can manifest itself in two ways:

Toll Operators

Toll operators all operate a similar business model: importing goods (most commonly within the pharmaceutical sector), processing them and distributing them within the UK for clinical trials. The toll operator does not take ownership of the goods and does not resell them. They may however, distribute the goods onwards at the instruction of the owner (their customer). The only supply by the Toll Operator is of its services to its client (the owner of the imported goods).

Title to the goods at all times remains with their overseas customers (the owners). However, the toll operator acts as ‘importer of record’ on UK import declarations, pays the import VAT to HMRC and receives the import VAT certificate (C79).

HMRC has become aware that a number of UK toll operators who have paid import VAT on behalf of overseas customers have also claimed a corresponding deduction for input tax under VAT Act 1994 s24. However, there is no provision in UK law for such deduction.

There is no evidence to suggest that the businesses concerned have knowingly applied the wrong treatment. In all cases seen by HMRC, the toll operator has dealt with the importation and paid/claimed the import VAT to provide an administrative and cash flow benefit to their overseas customers, as part of the overall service they provide.

The correct procedure is for the owner to be the importer of record and reclaim the import VAT, either in accordance with s24 VATA (if registered for VAT in the UK) or under part XXI of the VAT Regulations 1995 (SI 1995/2518).

Where title has passed before import into the UK

In some situations, businesses sell on the goods just prior to import into the UK so ownership and title has passed to the new owner, however the business that sold the goods acts as ‘importer of record’ on UK import declarations, pays the Import VAT to HMRC and receives the import VAT certificate (C79).

The correct procedure is for the new owner of the goods to be the importer of record and reclaim the import VAT on the C79, in accordance with s24 VATA.