Contractors' Questions: How to tackle VAT when exporting IT goods?
Contractor’s Question: I am the sole director of a new, privately held limited company which has a growing number of third sector clients, such as charities, who buy IT equipment from us for their use outside of the EU. But when we ourselves purchase the equipment, we have to pay VAT on it and we are not VAT-registered. What is the best way to bypass this up-front tax charge; should we recover the VAT later, or do we need to ask our supplier to send the equipment directly to the charities?
Expert’s Answer: Given that you are a for-profit, UK company selling goods, you must register for VAT once your turnover hits £79,000, although you are able to register for VAT even if your sales are below the registration threshold.
Registering for VAT with HM Revenue & Customs would allow you to recover the VAT that your suppliers charge you by filling out a VAT return. This return would also take into account any VAT you are charged on your IT equipment or other costs, including overheads.
Normally, a VAT-registered company is required to charge VAT on sales of equipment if the customer is in the UK. Fortunately in your circumstances, goods that are exported out of the EU qualify for a VAT relief.
But you need to consider the conditions attached to this relief. For example, the goods need to be exported within three months of the sale. Failure to meet this time limit, or failure to obtain valid proof that they were exported, will result in the full amount of VAT being payable. You can read what HMRC regards as ‘valid proof’ on this HMRC web-page, specifically Section 6.
As to your last question, you could indeed arrange for your supplier to export the goods to the end-users directly, but the same rules would apply. Whichever of these two routes you opt for, and as long as the conditions are met, you should receive a zero rate of VAT on the sales.
The expert was Adrian Houstoun, VAT partner at Kingston Smith LLP.