VAT: Tax warehousing

Foreword

This notice has been updated to reflect the legal status of the certificate reproduced at section 7.

1. Introduction

1.1 What is this notice about?

This new notice gives information on the VAT treatment of goods entered into, supplied within, and removed from tax warehouses in the UK, together with the treatment of supplies of services associated with those goods.

Information on the VAT treatment of goods acquired from countries outside the European Community (EC) and removed to home use from customs warehouses and free zones can be found in Notice 702/9 VAT: Imports Customs procedures with economic impact, End-Use Relief and Free Zones.

You can access details of any changes to this notice since October 2009 either on our website hmrc.gov.uk or by phoning our Helpline on 0845 010 9000.

This notice and others mentioned are available on our website.

1.2 VAT Warehousing law

Article 155 of Directive 2006/112 gives Member States the option of not charging VAT on supplies of goods and services whilst within warehousing regimes. The UK has implemented this option within section 18 of the Value Added Tax Act 1994.

1.3 What is a tax warehouse?

A tax warehouse is an authorised place where goods subject to Excise Duty are produced, processed, held, received or dispatched under duty suspension arrangements by an authorised warehousekeeper in the course of their business. They include:

• excise warehouses

• registered premises and stores

• distilleries, and

• refineries.

Note: If you are supplying goods in, or removing them from a tax warehouse in another Member State, the rules and procedures may be different to those that apply in the UK. You should therefore consult the authorities in that Member State if you are in any doubt.

1.4 Warehouse keeper’s responsibilities

The warehouse keeper’s responsibilities are set out in detail within Notice 197 Excise Goods: Receipt into and Removal from an excise warehouse of excise goods.

1.5 The territory of the European Community (EC)

1.6 The legal status of this notice

The majority of this notice is our view of the law and does not take the place of the law. The exception is the certificate reproduced at section 7 which has the force of law under Regulation 145C of the VAT Regulations 1995.

Unless otherwise qualified, the term ‘EC’ is used in this notice to refer to the VAT territory of the EC, which is different from the customs territory of the EC. The countries and territories which make up the VAT territory of the EC are listed in section 0.

2. Trading in a tax warehouse

2.1 Registration for VAT

If your only business activity is the supply of goods within a tax warehousing regime you have no liability to register for VAT, but you may do so voluntarily if you wish under VAT Act 1994, Schedule 1(10). Your liability to register for other business activities is not affected by the value of supplies of goods or services made in a tax warehouse.

2.2 VAT implications of placing goods in a tax warehouse

No VAT is payable when excisable goods subject to a warehousing regime are placed in a tax warehouse approved for those goods. VAT may be due when goods are removed from the warehouse to home use and is payable together with any suspended duty by the person who is removing the goods (or by the person liable to pay the duty).

2.3 Supplies in a tax warehouse of Community and home produced goods

No VAT is due on a supply of goods made in a tax warehouse provided that supply is followed by another supply of the goods while they are still warehoused. This means that the last purchaser of the goods (or someone acting on their behalf) accounts for and pays (or defers) the VAT on their purchase together with the excise duty when the goods are removed to home use. Section 4 provides guidance on the VAT treatment of goods removed to a destination outside the UK.

2.4 VAT due on removals from tax warehouses

VAT is due on the last supply of goods in warehouse and must be accounted for and paid (or deferred) when the goods are removed from the warehousing regime to home use (this is usually the point at which duty becomes payable on the goods). The VAT due will depend on the origin of the goods and whether any subsequent supplies take place whilst in the tax warehouse in the UK. VAT may also be due on certain services associated with goods held in a tax warehouse (see Section 5).

2.5 What is the VAT value of goods removed from UK tax warehouses?

Normal VAT valuation rules apply. If:

• acquisitions VAT is due see the valuation rules in Notice 725 VAT The single market
• supply VAT is due see the valuation rules in Notice 700 The VAT Guide.

You must include any excise duty in the value.

3. Accounting for VAT on removals from tax warehouses

3.1 Responsibility for paying the VAT

VAT is due on the last supply of goods in the warehouse regime. It must be accounted for and paid (or deferred) when the goods:

• are removed from the warehouse regime to home use (this is usually the point at which duty becomes payable on the goods).

VAT due on goods acquired from another Member State is accounted for on the acquirer’s VAT return (form VAT 100) covering the period in which they are removed from the warehousing regime. If the acquirer is not registered for VAT in the UK, acquisition VAT is accounted for and paid (or deferred) using the removal document.

Any VAT due in respect of previously zero-rated services (see section 5) must be accounted for together with the VAT due on the relevant goods.

The person removing the goods from the tax warehouse is responsible for ensuring that the correct amount of VAT is paid at the time of entry to home use.

3.2 Removal documents

When goods are removed from an excise warehouse any VAT due should be accounted for as follows:

For details of the reporting requirements for oils removed from warehouse see Notice 179 Motor & heating fuels: General information and accounting for Excise Duty and VAT.

For goods removed from registered premises/stores, the VAT is accounted for on these documents:

Whether the goods are removed from an excise warehouse or registered premises/stores, there is no requirement to separate the VAT due on the supply of goods from that due on the supply of services. Only a total is required. However, a separate record of all zero-rated services received in warehouse will have to be kept by the recipient of these services.

3.3 Evidence for input tax deduction

You can reclaim VAT as input tax, subject to normal rules, provided you hold evidence to support that entitlement. The owner of the goods whose liability it is to pay any VAT due on removal from warehouse will be issued with a certificate (C79) during the month after payment. This document is the official evidence needed to claim the VAT paid on warehouse removals as input tax. Where a C79 is not received in time for you to complete your VAT return, you may use alternative evidence of removal or payment to claim input tax. If you do this you should ensure that when the C79 certificate is received, it agrees with the input tax previously claimed.

You must also avoid making a duplicate claim. If you remove goods on behalf of the owner using the owner’s VAT number but pay the VAT on the owner’s behalf, you will not receive an import VAT certificate. You must not use alternative evidence, as this is not your input tax, but you should charge the VAT you have paid as a disbursement to the owner.

3.4 Deficiencies of warehoused goods

Any deficiencies of warehoused goods are treated as though they have been removed from the warehousing regime. Where deficiencies of goods are charged with duty, VAT not already paid on those goods is also to be charged. Similarly, any acquisition VAT on goods from another Member State which has not been accounted for should be accounted for when deficiencies occur. Deficiencies of home produced goods are not to be charged with VAT unless the goods have been supplied in warehouse before the loss. In each case, the VAT may be deducted as input tax, subject to the normal rules.

4. Removals of goods from a tax warehouse to a place outside the UK

4.1 Goods removed from warehouse to a place outside the UK

If goods are removed from a tax warehouse in the UK to a destination outside the UK, you will not have to pay the VAT normally due on removal to home use. In such circumstances, either the person making the final supply in warehouse or the person removing the goods can zero rate that transaction provided certain conditions are met (see table below). Liability to meet the zero rating conditions must be clearly established before the goods are delivered to avoid any doubt as to where responsibility lies.

The following table provides an overview of the VAT implications when goods are removed to a place outside the UK:

4.2 Reporting requirements when removing goods to a place outside the UK

When goods are removed from a tax warehouse in the UK to a place outside the UK you may also be obliged to fulfil certain other reporting requirements which are explained below.

4.2.1 Goods exported to a destination outside the EC

You must lodge a customs declaration if you are exporting goods to a country outside the EC. Full information on how to complete a customs declaration is contained in Notice 275 Export procedures. You should also declare the value of the goods in box 6 of your VAT Return (unless you are transferring your own goods to a destination outside the EC - see paragraph 4.3.1).

4.2.2 Goods removed to another EC Member State

If you are supplying a VAT registered customer in another EC Member State you must enter such supplies on an EC sales list covering the time of the removal and include them in box 8 of your VAT Return. If the value of your trade with other EC Member States exceeds a legally set threshold you will also be required to complete a supplementary declaration for intra-EC statistical purposes (Intrastat). These requirements must be met whether you are removing goods outside the warehousing system or under duty suspension to a warehouse in another EC country. Full information on completing an EC sales list and a supplementary declaration are contained in Notice 725 The Single Market and Notice 60 Intrastat General Guide.

4.3 Removal of own goods to a place outside the UK

Where you remove your own goods to another EC Member State (see paragraphs 4.3.2 and 4.3.3), the reporting requirements explained at paragraph 4.2.2 must also be met.

4.3.1 Exports to destinations outside the EC

Transfer of own goods to a destination outside the EC is not deemed to be a supply for VAT purposes and there is no requirement to declare the value of such goods as an output in box 6 of your VAT Return. However, if you are the owner of goods in warehouse and you are removing those goods for export to a destination outside the EC, proof of export must be retained to show that the goods have been transferred.

4.3.2 Removals to destinations in other EC Member States

Transfer of own goods to another Member State is deemed to be a supply for VAT purposes. Such supplies may be zero-rated (see paragraph 4.1) subject to meeting conditions set out in Notice 725VAT: The single market.

4.3.3 Removals under duty suspension to a tax warehouse in another EC Member State

Transfer of own goods in these circumstances are deemed to take place outside the UK and such transfers are disregarded for VAT purposes – see paragraph 4.1.

4.4 VAT treatment of drawback goods

UK duty paid excise goods which have been destroyed or removed to a destination outside the UK may be eligible for drawback (that is, a refund) of the duty paid. Detailed information on claiming drawback is contained in Notice 207 Excise Duty: drawback. Where drawback is claimed because the goods in question are either:

• removed to a VAT registered customer in another Member State (whether the goods go to a tax warehouse or not), or
• exported to a destination outside the EC

the supply does not fall within a warehousing regime for VAT purposes. However, such supplies may be zero-rated provided the conditions in Notice 725 The single market (for removals to other Member States) or in Notice 703 VAT: Export of goods from the United Kingdom (for exports outside the EC) are met.

5. Supplies of services in tax warehouses

5.1 Treatment of services associated with goods held in tax warehouses

Some services associated with goods held in tax warehouses can be relieved from VAT at the time they are supplied. In certain circumstances VAT will become due on such services when the goods concerned are subsequently removed from the regime to home use. While this is intended to assist businesses we also recognise that some may prefer, for administrative purposes, to continue to have such services taxed at the time they are supplied.

5.2 Services which may be zero-rated in tax warehouses

The services eligible for zero rating are restricted to those physical services that take place in the warehouse and are directly associated with the goods held in the warehouse. These will include those processes that create a new product, and others such as storage or secondary packaging. Charges made, for example, for brokerage, acting as an agent or for transport between warehouses in the UK are not eligible. Again, services exempt when supplied outside the warehouse remain exempt when supplied inside the warehouse.

5.3 How supplies of services may be relieved

(a) For the owner of the goods

If, as owner of the goods, any of the eligible services described in paragraph 5.2 (except the warehouse storage charges - see paragraph 5.4) are supplied to you by a third party, you may have the services zero-rated by the supplier. To do this you need to issue to the supplier a certificate, stating the goods are under duty suspension arrangements at the time the services are to be carried out (an example of such a certificate is shown at Section 7).

(b) For the supplier of the service

Before you perform the service you might obtain from the owner of the goods a certificate as described in (a) above. If you do receive such a certificate you should issue a VAT invoice to your customer in the usual way, and at the usual time, but VAT should be shown as zero-rated ‘in accordance with section 18C(1) VAT Act 1994’ and no VAT should be charged. The certificate you receive from the owner should be kept with your records as it provides you with the evidence needed to support the zero rating of your supplies. If you do not receive a certificate from the owner of the goods, you should issue your invoice in the usual way including VAT (as necessary) at the standard rate.

5.4 Warehouse storage charges

The certificate mentioned in paragraph 5.3 is not required for warehouse keepers’ storage charges. Such supplies of services are normally automatically zero-rated. The invoice that is to be issued by the warehouse keeper to enable zero rating should include the words ‘in accordance with section 18C(1) VAT Act 1994’ and no VAT should be charged. If, as the owner of the goods, you decide you want the storage standard-rated, you should notify the warehouse keeper of this in writing. The ware housekeeper will then issue an invoice and include VAT at the standard rate.

5.5 Subsequent taxation of previously zero-rated services

(a) When tax will be due

Services which are zero-rated at the time of supply will subsequently be taxed either when the goods with which they are associated are removed from the warehousing regime to home use, or at the duty point, in the following circumstances:

• when the service has not created new goods (see paragraph 5.6), or
• when the goods themselves have not been the subject of a supply (whilst still warehoused) after the service was provided.

(b) When tax will not be due

Services will not be subsequently taxed on removal of the relevant goods in the following situations:

• the service creates new goods
• the goods are supplied (whilst still warehoused) after the service was provided
• the goods are exported under duty suspension arrangements directly from the warehouse to a non-EC country, or
• the goods are sent under duty suspension arrangements to a tax warehouse in another Member State.

5.6 Services that change the nature of the product and create new UK product

Some services or processes applied to existing goods can change their nature to the extent that a new product is considered to have been created (for example, refining crude oil into motor spirit). The new product is then treated as having been produced in the UK. A list of processes undertaken in tax warehouses which are regarded as creating new UK product can be found in section 6. In addition to these processes, a new product is created when home-produced goods are mixed or blended with Community or non-Community goods resulting in the original goods losing their identity.

If the original goods were acquired or supplied before processing, any VAT that would have been due on the goods if they had not been processed is extinguished.

5.7 Treatment of services that create new UK product

If a service is carried out on goods, whether acquired, supplied or home produced and the service changes the nature of the product, no VAT is due in respect of that service, nor on the acquisition or supply. This is because the goods upon which the process has been carried out have ceased to exist and therefore can never be removed from the warehouse. VAT will only be due if the new goods are subsequently supplied or have a further service carried out on them that does not create new UK product (for example, secondary packaging).

6. List of processes that change the character of goods held in a tax warehouse

The following processes change the character of goods and create a new UK product when they are performed in a tax warehouse.

Excise Warehouse

Alcoholic liquids

• Fortifying made-wine.
• Fortifying wine.
• Mixing beer or wine with made-wine to produce made-wine.
• Producing beverages/foodstuffs of low alcoholic strength qualifying for duty relief.
• Rectifying and compounding spirits.
• ‘Rendering’ made-wine sparkling (that is, aerating/carbonating made-wine).
• The maturation and processing of plain spirits until they can legally be defined as whisky.
• The blending or marrying of different whiskies.

Registered Premises

Beer, Wine, Cider & Perry

• Blending.
• Mixing (including making shandy and low alcohol drinks).
• Dilution.
• Pasteurisation.
• Carbonation.
• Sterile filtration.
• De-alcoholisation.
• Fortification.
• The fermentation and processing of fresh grapes, or the must of fresh grapes, until they can legally be defined as wine.
• Rendering wine sparkling, including disgorging.
• Rendering cider sparkling.

Mineral Oil production plant

Refining processes including

• Synthesis (chemical refineries where hydrocarbon oil is produced as a by-product of the plant process).
• Oil to oil (oil refineries where crude and other feedstock is processed to produce a range of hydrocarbon products).

Examples of specific processes which constitute refining can be found in Notice 179 Motor and Heating Fuels: General Information and Accounting for Excise Duty and VAT.

Tobacco manufacturing

Cigarettes

• Leaf to rag.
• Rag to cigarette.

Hand rolling tobacco

• Leaf to finished product.

Pipe tobacco

• Leaf to blended and flavoured rag (prior to pressing).
• Blended and flavoured rag (prior to pressing) to finished product.

Cigars

• Leaf to filler.
• Filler to cigar.

7. Zero rating of services (other than the supply of warehousing) performed within a tax warehouse

"THE FOLLOWING TEXT HAS THE FORCE OF LAW"

(Referred to in paragraph 5.3(a).)

Information to be indicated:

I …………………………………………. (full name)

…………………………………… (status in company)

Of ……………………………………………….. (name and address of company)

declare that the goods shown below are subject to a warehousing regime at the place indicated below:

• description of goods
• quantity of goods
• warehouse stock number
• name and address of warehouse
• authorisation number of the relevant warehouse keeper and/or warehouse

and that the following services are to be performed on the goods in the warehouse:

I certify that the supply of services is eligible to be zero-rated for VAT purposes under section 18 C (1) of the VAT Act 1994.

…………………………………………….. (signature)

…………………………………… (date)

Note: You should be aware that there are severe penalties for making a false declaration. If there is any doubt about a supply being entitled to zero rating you should consult the Helpline on 0845 010 9000 before signing and giving the certificate.

A copy of the certificate should be filed with the suppliers’ invoice which should refer to s18 C (1) of the VAT Act 1994 to be eligible for zero rating.

8. The fiscal (VAT) territory of the European Community

(Referred to in paragraph 1.5.)

Consists of:

• Austria
• Belgium
• Bulgaria
• Cyprus
• Czech Republic
• Denmark, except the Faroe Islands and Greenland
• Estonia
• Finland
• France, including Monaco
• Germany, except Busingen and the Isle of Heligoland
• Greece
• Hungary
• The Republic of Ireland
• Italy, except the communes of Livigno and Campione d'Italia and the Italian waters of Lake Lugano
• Latvia
• Lithuania
• Luxembourg
• Malta
• The Netherlands
• Poland
• Portugal, including the Azores and Madeira
• Romania
• Slovakia
• Slovenia
• Spain, including the Balearic Islands but excluding Ceuta and Melilla
• Sweden
• United Kingdom, including the Isle of Man.

There are some ‘special territories’ which are within the EC customs area but outside the EC fiscal (VAT) area:

• Andorra
• Gibraltar
• Mount Athos (Greece).
• San Marino
• The Åland Islands (Finland)
• The Canary Islands (Spain)
• The Channel Islands
• The overseas departments of France (Guadeloupe, Martinique, Reunion and French Guiana)
• The Vatican City

Goods entering the UK from these ‘special territories’ are treated for VAT purposes as imported goods.

Your rights and obligations

Your Charter explains what you can expect from us and what we expect from you. For more information go to www.hmrc.gov.uk/charter

Do you have any comments or suggestions?

If you have any comments or suggestions to make about this notice, please write to:

HM Revenue and Customs
Subject Matter Expert team
VAT Process Owner Team
1st Floor Regian House
James Street
Liverpool
L75 1AD

Please note this address is not for general enquiries.

For your general enquiries please phone our Helpline 0845 010 9000.

Putting things right

If you are unhappy with our service, please contact the person or office you have been dealing with. They will try to put things right. If you are still unhappy, they will tell you how to complain.

If you want to know more about making a complaint go to hmrc.gov.uk and under quick links, select Complaints and appeals.

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We may get information about you from others, or we may give information to them. If we do, it will only be as the law permits to:

• check the accuracy of information
• prevent or detect crime
• protect public funds.

We may check information we receive about you with what is already in our records. This can include information provided by you, as well as by others, such as other government departments or agencies and overseas tax and customs authorities. We will not give information to anyone outside HM Revenue & Customs unless the law permits us to do so. For more information go to hmrc.gov.uk and look for Data Protection Act within the Search facility.

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