Clarification on the VAT rate to be charged on customs intermediary charges
Further to BIFA Member enquiries with the confusion surrounding some of the text in Public Notice 744b (Freight Transport and Associated Services), BIFA sought clarity from HMRC’s VAT Policy Team on whether the customs intermediary charges should be zero or standard rated.
The following is the reply received from HMRC’s VAT Policy team.
Clarity on VAT Notice 744B ‘Freight Transport and Associated Services’, in particular, regarding the use of Customs Intermediaries
UK based Freight Forwarder A has been contracted by customer B (UK established business) to arrange the import of a shipment of furniture by road from Paris to London. A customs clearance is required at Dover and Freight Forwarder A appoints Customary Intermediary C, who clears the goods and then invoices freight forwarder A for providing customs clearance services.
In this scenario, the supply from A to B is a business to business (B2B) supply of freight transport. As such, paragraph 3.2 of Notice 744b confirms that the place of supply is where the customer belongs, in this case the UK. As the place of supply is the UK, the supply of the freight transport is within the scope of UK VAT.
With regards to Customs Intermediary C, paragraph 3.4 of the Notice states that where you are a sub-contractor supplying freight transport or related services to a main contractor, the place of supply of your services is determined by the status of your immediate customer.
Section 6 of Notice 744b sets out those services which are considered to be ‘related services’. Whilst not expressly stated, the services of a Customs Intermediary would normally fall within the services set out here, so would qualify as related services.
The Customs Intermediary’s immediate customer in this case is the UK based Freight Forwarder, so their services are within the scope of UK VAT. Paragraph 4.1 of the Notice states that the supply of transportation or related services connected with an import into or an export from the UK is zero-rated. As such, the Customs intermediary services may be zero-rated as services with a place of supply of the UK, which are connected to an import into the UK.
UK based Importer A arranges the movement of a shipment from Paris to London via Dover directly with a Haulier. The Importer A appoints a Customs Intermediary B to act on their behalf to clear the goods when they reach Dover. In the view of HMRC in this scenario B may zero rate the invoice to A because B’s role is to provide a service to A relative to an international movement. Also, there is a direct contractual arrangement between A and B.’
Presumably, the importer A is in business, so normal B2B rules apply. The place of supply is where the customer belongs for both the haulage contract and that with B (the UK). If B’s intermediary services are connected with an import into or an export from the UK, they are zero-rated for VAT.