When you export goods to a customer in a country outside the EU, the sale is zero-rated for VAT if, and only if, seven different points of supporting evidence can show what went from A to B, what it was worth, how it moved, and who received it.
The seven categories of evidence set out in section 6.5 of VAT Notice 703 are:
- the supplier
- the consignor (where different from the supplier)
- the customer
- the goods
- an accurate value
- the export destination
- the mode of transport and route of the export movement
If any of those points are not detailed on documents retained in the UK, HMRC will conclude that the goods were not eligible for zero rating and it will demand 20% of the value of the goods exported.
The goods have to be described in some detail, such as ‘make XZ and model number AB17856’. A general description along the lines of ‘various electrical goods’ will not be acceptable. To prove the goods have been moved out of the country, the original bills of lading, air-waybills, or sea-waybills must be retained. Photocopies won’t be acceptable to HMRC unless they have been authenticated by the shipping or airline company.
HMRC also has the power to impose penalties for a careless or deliberate error, of up to 100% of the VAT which should have been paid.