Can I Claim VAT on Exported Goods?

If you're a UK business involved in exporting goods to customers abroad, one of the key benefits you can take advantage of is the ability to claim VAT (Value Added Tax) on your exported goods. VAT rules for exported goods vary depending on the destination and type of goods being exported, so it’s essential to understand when and how you can reclaim VAT or apply the zero-rate VAT to your sales.

In this detailed guide, we will explain the rules surrounding VAT on exported goods, who can claim VAT, how to apply VAT relief, and the steps involved in claiming VAT on exported goods.

What Is VAT on Exported Goods?

VAT is a tax levied on most goods and services in the UK. When you sell goods domestically, you typically charge VAT at the standard rate of 20% (as of 2024). However, if you export goods from the UK to destinations outside the UK, you may be eligible to apply the zero-rate VAT, meaning that you can charge 0% VAT on these goods.

Even though you charge 0% VAT on exported goods, you can still reclaim any input VAT you paid on business expenses related to the sale of these goods, such as costs for materials or logistics.

Who Can Claim VAT on Exported Goods?

VAT on exported goods can typically be claimed by VAT-registered businesses in the UK that export goods either to EU countries (under special conditions post-Brexit) or non-EU countries. To claim VAT relief, the business must comply with HMRC's export VAT rules and ensure that they keep proper documentation of the export process.

Export Categories:

• Goods exported outside the UK: Businesses exporting goods to countries outside the UK, including the EU, can zero-rate the sale and claim back VAT on related costs.

• Goods sold within the UK: If goods are sold domestically, VAT is charged at the applicable UK rates (usually 20%).

How Does Zero-Rated VAT on Exported Goods Work?

When you export goods from the UK, you can apply zero-rate VAT to the sale as long as certain conditions are met. The zero-rate VAT means that no VAT is charged on the goods sold, but you can still reclaim the VAT paid on any business expenses related to those goods (like supplies, manufacturing costs, and transport).

Here’s how zero-rate VAT works for exporting goods:

1. Sales to Non-UK Countries: When you sell and export goods to countries outside the UK, you may apply zero-rate VAT to your sales, meaning you don’t charge VAT to your international customers.

2. Proof of Export: To qualify for zero-rate VAT, you must provide valid proof of export to HMRC, showing that the goods have been sent outside the UK. This proof can include shipping documents, transport company records, or customs forms.

3. Time Limits for Export: HMRC requires that goods must be exported from the UK within three months of the sale date to qualify for zero-rating.

4. Input VAT Recovery: Even though you’re not charging VAT on the export sale, you can still recover any input VAT you’ve paid on expenses directly related to the export of goods.

When Can I Claim VAT on Exported Goods?

You can claim VAT on exported goods if the following conditions are met:

1. You’re VAT-Registered: You must be VAT-registered in the UK to apply zero-rate VAT or reclaim input VAT on exported goods.

2. Goods Are Sent Outside the UK: Goods must be physically sent to a destination outside the UK to qualify for zero-rate VAT. This applies to both goods sent to businesses and individuals outside the UK.

3. Proof of Export: You need to keep sufficient evidence that the goods have left the UK. This includes shipping or delivery documents, invoices, and customs declarations.

4. Goods Are Not Used in the UK: The goods must be solely for use or resale outside the UK and cannot be used domestically.

5. Timing Requirements Are Met: Goods must be exported within three months of the invoice date for the sale to be eligible for zero-rated VAT.

How to Apply Zero-Rate VAT on Exported Goods

To apply zero-rate VAT on your exported goods, follow these steps:

1. Issue an Invoice: When exporting goods, issue an invoice showing a zero VAT rate. The invoice should clearly state that the goods are being exported and that zero-rate VAT applies.

2. Keep Documentation: Maintain all necessary documents, such as sales invoices, shipping documents, customs forms, and transport records that show the goods left the UK.

3. Submit VAT Return: When filing your VAT return, include the zero-rated export sales, as well as the input VAT you want to reclaim on expenses related to those goods.

4. Claim Input VAT: Even though the sale was zero-rated, you can still claim back the VAT you’ve paid on any input costs associated with the export, such as materials, packaging, or shipping.

What Documentation Is Required for VAT on Exported Goods?

To claim VAT on exported goods or to apply zero-rate VAT, you need to retain documentation that proves the goods have left the UK. HMRC requires you to provide proof of export within three months of the sale.

Key Documents Include:

• Invoices: Sales invoices showing zero-rate VAT applied.

• Shipping and Delivery Documents: Bills of lading, airway bills, or delivery notes.

• Export Declaration: Proof that the goods were declared to customs for export.

• Customer Correspondence: Any correspondence confirming the customer’s location and the destination of the goods.

Can You Claim VAT on Goods Exported to the EU?

Since the UK left the European Union (Brexit), rules for exporting goods to the EU have changed. Goods exported to the EU are now treated in the same way as exports to non-EU countries. This means you can apply zero-rate VAT on these exports, as long as you provide valid proof that the goods have left the UK.

Post-Brexit Rules for VAT on EU Exports:

• Goods shipped from the UK to the EU can be zero-rated for VAT purposes.

• You must ensure that your business complies with both UK export rules and any new customs duties or VAT rules in the destination country.

• The goods must be exported within three months and supported by valid export documentation.

What Are the Benefits of Zero-Rate VAT on Exported Goods?

• Reduced Costs for International Customers: By applying zero-rate VAT, your international customers pay no VAT, making your goods more competitively priced abroad.

• VAT Recovery on Expenses: Even though you charge zero-rate VAT on sales, you can still recover VAT on any related business expenses, such as production or shipping costs.

• Encourages Exports: The zero-rate VAT system is designed to promote international trade by reducing the tax burden on exporters.

Can I Claim VAT on Services Provided to Overseas Customers?

In addition to goods, certain services provided to customers overseas may also qualify for zero-rate VAT. The rules for services differ slightly, and you should consult HMRC guidelines for specific conditions related to services.

Conclusion

Claiming VAT on exported goods in the UK can provide substantial benefits to businesses, allowing them to apply zero-rate VAT while still reclaiming VAT on input costs. However, it’s essential to meet HMRC’s strict documentation and timing requirements to qualify for VAT relief.

By maintaining thorough records, issuing zero-rated invoices, and ensuring that goods are exported within the required time frame, UK businesses can make the most of the VAT relief available for exported goods.

For more information on VAT for exporters, visit GOV.UK or consult a professional VAT advisor to ensure full compliance with UK tax regulations.