Updated HMRC guidance on evidence required to zero rate exports
28 April 2023| CATEGORIES: Exports, Uncategorised, VAT, zero rate| TAGS: Exports, HMRC, New guidance, zero rate
It is essential that businesses retain in their VAT records the correct evidence to support zero rating of exports from the UK. HMRC have recently updated the guidance in Notice 703 to clarify what is considered to be satisfactory evidence.
Conditions and time limits for zero rating
Certain conditions must be met before supplies of goods for export can be zero rated.
A business must obtain and keep evidence to prove entitlement to zero rating. Evidence can be official or commercial. It must be supported by supplementary evidence.
Conditions also set time limits in which:
- the goods must be physically exported from the UK
- evidence of export must be obtained to support zero rating.
The relevant time limit for exporting goods and obtaining the relevant evidence for most types of export is 3 months.
Only exports that comply with these conditions are eligible for zero rating.
Proof of export
Generally, both official evidence and commercial evidence carry equal weight for zero rating purposes. However, HMRC have clarified that, if the commercial evidence is found to be lacking sufficient detail, a business will be expected to provide official evidence. It is also necessary to provide supplementary evidence to show that a transaction has taken place, and that the transaction relates to the goods physically exported.
If the evidence of export provided is found to be unsatisfactory, VAT zero rating will not be allowed, and the supplier of the goods will be liable to account for the VAT due.
Types of evidence
Official evidence – this is the cleared export entry declared to the appropriate HMRC system.
Commercial evidence – this describes the physical movement of the goods, e.g., authenticated sea waybills, authenticated air waybills, PIM/PIEX International Consignment Notes, master air waybills or bills of lading etc.
Supplementary evidence – this refers to evidence likely to be held within the accounting system and includes the customer’s order, sales contract, inter-company correspondence, copy of export sales invoice, advice note, consignment note, packing list, insurance and freight charges documentation, evidence of payment or evidence of the receipt of the goods abroad. Sufficient evidence to prove that a transaction has taken place should be retained in the records, though it will probably not be necessary to hold all of the items listed.
What information must be shown on the export evidence
HMRC have also clarified in the latest update the level of detail expected to be shown on the evidence. Paragraph 6.5 of the Notice now states:
An accurate description of the exported goods and quantities are required, for example ‘2000 mobile phones (Make ABC and Model Number XYZ2000), value £50,000’.
If the evidence is found to be unsatisfactory you as the supplier will become liable for the VAT due.
If you’ve described goods inaccurately on an export declaration you may be liable for a customs penalty.
The rest of this paragraph has force of law.
The evidence you obtain as proof of export, whether official or commercial, or supporting must clearly identify:
- the supplier
- the consignor (where different from the supplier)
- the customer
- an accurate and full description of the goods including quantities
- an accurate and consistent value of the goods
- the export destination, and
- the mode of transport and route of the export movement.
Vague descriptions of goods, quantities or values are not acceptable. An accurate value must be shown and not excluded or replaced by a lower or higher amount.
This latest guidance is helpful in understanding the specific requirements. Businesses that export goods should review their export processes to ensure their record keeping meets these standards.