On 12 July 2021, the First-tier Tribunal (Tax Chamber) (“FTT”) released its decision in Scanwell Logistics (UK) Limited v HMRC [2021] UKFTT 261 (TC), rejecting the taxpayer’s claim for onward supply relief (“OSR”).
Whilst OSR is now limited, post-Brexit, to goods imported into Northern Ireland for onward supply to the EU, the FTT’s discussion of agency under section 47 of the Value Added Tax Act 1994 (“VATA”) is of broader interest.
The case serves as a reminder of the significant financial consequences that can result from errors in tax planning, as Scanwell was ultimately held liable for £5.7 million in unpaid import VAT despite the fact that the imported goods almost immediately left the UK (which, if properly planned, could have meant Scanwell was relieved from liability to import VAT).
The Facts
Scanwell acted as an ‘import agent’ in relation to the import of goods from China into the UK (which at the time was still an EU member state) and their onward transport to end customers in other EU countries.
On importing the goods into the UK, Scanwell claimed exemption from import VAT under the OSR provisions. HMRC, however, considered that the relief was not available to Scanwell and subsequently assessed Scanwell to import VAT. Scanwell appealed the assessment to the FTT.
The Law
Where goods are imported into the UK, import VAT is typically charged under section 1 of VATA.
At the relevant time, OSR provided a relief from import VAT where the goods imported into the UK were subsequently re-despatched to a VAT-registered entity in another EU country, generally within one month of importation.
Scanwell accepted that it had never acquired title to the goods from the Chinese suppliers. Instead, it argued that, since it acted as agent for the end customers in the EU, it fell to be treated as part of the supply chain under section 47 VATA, so as to meet the requirements for OSR.
The FTT’s decision
After careful consideration of the legislative provisions, the FTT (Judge Hellier) concluded:
Section 47(2A) VATA
Whilst the FTT considered various provisions within section 47 VATA, its main focus was on section 47(2A), notably rejecting HMRC’s contention that it was limited to purely domestic transactions.
Section 47(2A) provides that “where… goods are supplied through an agent who acts in his own name, the supply shall be treated both as a supply to the agent and as a supply by the agent”.
The FTT decided that this did not apply on the facts, as Scanwell was neither (i) an agent through which goods were supplied nor (ii) did it act in its own name for the purposes of the provision. Specifically, it held:
The FTT dismissed Scanwell’s concern that the denial of OSR would lead to double taxation on the supply to the end customers: import tax in the UK and tax again in the destination member state. This was because there existed an alternative procedure by which the goods could have been transported which would have avoided double taxation, but which had not been used. There was therefore no need to construe the legislation in the appeal any differently.
The full text of the FTT’s decision is available here.