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Easing of VAT rules on freight outside EU

22 March 2010
Issue: 4248 / Categories: News , VAT
Temporary measure to reduce admin burden

HMRC have introduced a temporary administrative easing of the rules relating to business-to-business (B2B) supplies of freight transport performed outside the EU.

Until 1 January 2010, the place of supply of freight transport was the country in which the activity took place, meaning supplies performed outside the EU were outside the scope of VAT.

Transportation related to imports to and exports from the EU could have had a place of supply both within and outside the EU and, to the extent they were performed within the EU, the VAT liability was zero rated.

From January , B2B supplies of freight transport and associated services became subject to the new general rule for place of supply of services: where the business customer belongs.

As zero rating only applies to supplies in connection with EU imports and exports, the liability of supplies wholly outside the EU is standard rated.

Given the increased administrative burden this change is having on businesses and charities, with no revenue impact for the UK, HMRC say where a supply of freight transport would be treated as supplied in the UK, it will not be treated as supplied in the UK if the use of the services is outside the EU.

This is a temporary measure, effective from 15 March, to allow time for consideration of a more permanent legislative solution.

Issue: 4248 / Categories: News , VAT
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