US Companies Shipping Product to the United Kingdom May Be Liable for Unannounced Value-Added Tax

Her Majesty’s Revenue and Customs (HMRC) has quietly changed its policy relating to value-added tax (VAT) on imports into the United Kingdom of products that are used or consumed in-house and not resold to customers.

The unannounced change in policy appears to be retroactive to at least the second quarter of 2014 and eliminates the ability of third-party importers to deduct the import VAT. US companies often use third-party service or manufacturing vendors to function as importers of record for products shipped to the United Kingdom. They’re now seeing charges billed back to them by UK-based service providers for recent and future imports.

This means the VAT, which is charged at a 20% rate in the United Kingdom, may become an added cost to US-based companies using those vendors unless the US company has a mechanism in place to apply for a refund of import taxes or changes its physical supply chain to remove the UK import VAT altogether. This may create significant cash flow issues and cash tax costs in the form of difficult-to-recover VAT charges.

Who’s Affected

Your company could potentially be affected if it uses a third-party UK importer of record and either of the following is true. Your company ships:

  • Products to the United Kingdom for trials or testing there or elsewhere in the European Union with the United Kingdom being the initial country of importation
  • Active pharmaceutical ingredients (APIs) or other products to the United Kingdom for a manufacturing process prior to being returned to the United States or onward shipped to their final destination

Pharmaceutical companies running drug trials, conducting testing, or manufacturing products in the United Kingdom are likely to be the most impacted. Other US businesses that ­­­previously relied on their UK-based service providers to recover the import VAT on goods where title remains with the United States will see similar cost increases and supply chain issues.

A refund for any import VAT assessed may be available, but there are likely to be some administrative hurdles to substantiating claims. Companies that are potentially affected by these new rules may consider changing physical supply chain routes or exploring other alternatives to reduce UK VAT and risk.

We're Here to Help

If you’d like to learn more about how these changes to the UK VAT policy may impact your business, contact your Moss Adams professional or email intl@mossadams.com.