Anyone who imports goods into the UK must pay import VAT. Import VAT is only, however, recoverable by a person importing those goods (i) as owner (ii) in order to sell/hire or otherwise use those goods in making taxable supplies.
This was confirmed by the recent First-tier Tribunal (FTT) judgement in TSI Instruments Limited v HMRC [2025] UKFTT 01278 – leaving the company with an import VAT cost of £8.5m.
After-sales support offices
It is common practice for overseas goods vendors with customers in the UK/EU to establish after-sales subsidiaries (which this article will refer to as Repair Offices or ROs) in the UK to handle warranty repair and similar services.
Import VAT
When importing goods into the UK/EU, import VAT is generally charged at the border (it may be ‘postponed’ in certain circumstances, but this does not affect the substance of this decision). There has long been a question of whether such ROs, if they handle the importation of goods into the UK/EU in order to perform their services, are entitled to recover import VAT that they incur on importing the goods into the UK/EU.
But-for test
The argument for recovery has been that an RO cannot perform its service without importing the goods. The RO charges (either the customer or its own head office) for its services; the direct and immediate link to a taxable supply is therefore established. This is referred to in VAT terminology as the but-for test (i.e. but for importation, the taxable supply of repair services could not be made).
UK legislation – ownership seemingly not required
Another argument, in the UK at least, is that UK law (as written down in the legislation) does not seem to require ownership of goods to qualify the importer for import VAT recovery. Reg. 29 provides that the “claimant” may be the “importer, consignee or owner”. This seems to imply that a person other than the owner of goods may recover UK import VAT they have incurred.
There is a long line of EU caselaw concerning the recovery of import VAT by persons other than the owner. The FTT in TSI Instruments considered these decisions in depth.
To cut the story short, the EU has rejected the but-for test in favour of a “cost component” test. Put simply, it is not enough that you couldn’t make a taxable supply without importing the goods, the value of the goods must form part of the price that you charge to your customer either because you:
(i) you sell those goods;
(ii) hire them out with a price based on the cost of ownership; or
(iii) use those goods in your business and incorporate their cost into the prices of goods/services that you supply.
Is the UK law capable of conformal interpretation with EU law?
EU law seems to require ownership of goods for recovery of EU import VAT. UK law seems to imply that this is not necessary. This would seem to mean UK law is not compatible with EU law (and shouldn’t be force-read conformally with EU law).
The FTT disagreed. A very specific example (relating to yachts) was given where a non-owner could claim import VAT and this specific example was presented as being what the legislation meant when referring to an “importer” or “consignee” who is not the owner. In all other instances, Reg 29 could be interpreted conformally with EU VAT law.
In short: You don’t have to be the owner, but you do have to be the owner, unless you don’t… so, you do.
But VAT’s unfair!
This is a rather unfair decision because VAT is designed as a business-neutral multi-stage tax. If you have incurred VAT on your inputs and you have made VATable outputs, you should generally be entitled to recover VAT on your inputs (“input VAT”).
With this in mind, if the question were “Who is entitled to recover the import VAT incurred?”, the answer should surely be “the person who properly incurred it” (in this case the RO). The core theology of VAT does not, however, always flow into all of its doctrines.
The moral of the story
The RO in this case had assumed they would be fine recovering import VAT on goods they imported on their customer’s behalf. This assumption cost them dearly.
There are ways to avoid incurring import VAT at the border, but these require advance planning, careful administrative record-keeping and compliance. Reliefs such as inward processing relief or temporary importation relief may have helped the RO in this instance (relieving them of the obligation to account for import VAT in the first place), but it can be difficult to apply these retroactively (or impossible if the conditions have not all been met). Once the import has been declared and VAT has been incurred, it is often too late.
Would you like to know more?
For more information about import VAT, and specialist guidance on VAT compliance for your business, get in touch with Luigi Lungarella or send us an enquiry.
