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Foreign Purchases and VAT - Guidance Note

This document has been prepared by the University's taxation manager, Mark Smith, to provide guidance to MMU staff on the VAT issues associated with purchases of goods and services from non-UK suppliers. For additional assistance, please contact Mark on extension 1870 or email mark.smith@mmu.ac.uk

Background

The University incurs VAT on many of its purchases of goods and services from UK suppliers. As the University’s main activities of education and research are VAT exempt, it cannot normally recover the VAT it incurs on its expenditure. When goods and services are purchased from non-UK suppliers, the University is, in most cases, not charged VAT. On the face of it, this would appear to make it advantageous to source similar items from non-UK suppliers, as purchases would not incur UK VAT.

However, VAT legislation recognises this anomaly and imposes VAT on foreign purchases, either by charging import VAT at the point of entry of goods into the EU, or more commonly by requiring the University to make an adjustment on its VAT return and account for VAT at 20% on international services and purchases of goods from other EU member states.

Therefore, even though the quotation and /or purchase order do not include VAT, there will be an additional 20% VAT cost associated with most foreign purchases, which should be recognised when placing orders and setting budgets.

 

Services purchased from other EU member states

In most cases, MMU should not be charged local VAT when purchasing services from businesses or individuals in other EU member states. In order to avoid incurring VAT across the EU, there is a simplification procedure, which allows the supplier to invoice VAT free and for the customer to account for VAT in their own member state (known as the “reverse charge”). When placing an order with a supplier in another EU member state, MMU’s VAT number should always be provided as this will provide the evidence for the supplier to invoice VAT free. MMU’s VAT number is GB 108 2604 41.

 

Services purchased from outside the EU

The University is required to account for VAT under the reverse charge on most services purchased from non-EU countries. This is because EU VAT law determines the place of the supply to be in the customer’s country.

 

Reverse Charge VAT procedure

The taxation manager now reviews all foreign purchases on a monthly basis to identify purchases that require a “reverse charge” VAT adjustment. A journal is then posted to account for the VAT to HMRC and the VAT posted to the project code or cost centre to which the original purchase was posted. As the University is unable to recover VAT, unless the purchase relates to a project on which VAT is charged to the customer, this will create any additional 20% cost to the budget.

Certain services will not be subject to the reverse charge. Common examples include hotel accommodation and conference delegate fees, which will be subject to local VAT, and advertising services, which are eligible for VAT relief due to the University’s charitable status.

 

Goods purchased from other EU member states

In most cases, MMU should not be charged local VAT when purchasing goods from businesses in other EU member states. In order to avoid incurring VAT across the EU, there is a simplification procedure, which allows the supplier to invoice VAT free and for the customer to account for VAT in their own member state (for goods known as “acquisition VAT”). When placing an order with a supplier in another EU member state, MMU’s VAT number should always be provided as this will provide the evidence for the supplier to invoice VAT free. MMU’s VAT number is GB 108 2604 41.

 

Acquisition VAT procedure

The taxation manager now reviews all foreign purchases on a monthly basis to identify purchases that require an acquisition VAT adjustment. A journal is then posted to account for the VAT to HMRC and the VAT posted to the project code or cost centre to which the original purchase was posted. As the University is unable to recover VAT, unless the purchase relates to a project on which VAT is charged to the customer, this will create any additional 20% cost to the budget.

Certain goods will not be subject to the reverse charge. Common examples include books, which are zero-rated (though note that e-books are subject to VAT) and certain items purchased for medical research purposes, which are eligible for VAT relief due to the University’s charitable status.

 

Imports of goods

Goods imported from outside the EU are subject to import VAT and duties at the point of entry into the UK. Any import VAT and duty has to be paid to HMRC before the goods are released from the airport or port. In many cases, the freight carrier will pay the import VAT and duty on our behalf and will invoice the University for these costs along with their carriage charge. In other circumstances, the University may be required to make a physical payment to HMRC before the goods can be delivered to our premises.

Import VAT and duty relief are available for certain pieces of scientific equipment imported for the purposes of carrying out medical research. Import Duty relief has to be claimed and approved by HMRC prior to importation. To claim VAT relief, a completed eligibility certificate should be provided to the freight carrier or HMRC. If you are considering importing scientific equipment for medical research purposes, please contact Mark Smith to provide additional guidance and assistance in advance of the goods being shipped.

Article last updated: Monday, November 2, 2015

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