Direct exports can usually be treated as zero-rated provided the following conditions are met. These are that the supplier:
- Exports the goods from the EC within the relevant time limits (three months from the time of supply);
- Obtains evidence of export of the goods within three months from the time of supply and
- Holds supplementary evidence of the export transaction.
Confusion arises when there are more than two businesses in the supply chain. Just because the goods are being shipped by the client to a business outside the EC, it does not necessarily mean that they can zero-rate the sale. In your client’s scenario we have:
- Company A – UK client selling gym equipment;
- Company B – UK company purchasing the goods but not taking delivery of them, and
- Company C – Swiss company which is B’s customer, receiving the goods.
This transaction should be treated as two separate supplies, and only the final supply relating to the export can be zero-rated.
This means that the supply from company A to company B is a UK to UK transaction, and therefore subject to the appropriate rate of UK VAT; in this case, standard rated.
Company B will be invoicing company C, and it is B that will be able to zero-rate this supply subject to the rules above. As it will be your client who physically ships the items, he will need to pass the evidence of shipping to company B.
HMRC’s guidance on this point is set out as Notice 703 (Exports) in paragraph 4.1, and the conditions for zero-rating direct exports are set out in paragraph 3.3.