Margin Scheme - Import VAT & Disbursements

[strategie]

Hello,

I have an online art gallery operating under Margin Sheme. Import (drop shipp) painting from outside of the EU and I pay 5% import VAT.

I understand that the Landing Cost is composed out of the value of the goods themselves plus shipping, packaging and insurance fees which also attract %5 import VAT.

See Notice 718

3.1 How do I calculate my selling price?
Your selling price is everything which you are to receive for the goods, whether from the buyer or a third party. It includes incidental expenses directly linked to the sale, for example:

commission
packaging
transport, and
insurance costs
which you have charged to the customer.

Optional extras charged to the buyer, including any insurance provided by a third party, and disbursements do not form part of the selling price: you should account for these separately outside the Margin Scheme.


I presume this is in case when I have to pay for packaging, insurance and transport.

But what happens if it's not me who pays for these additional services? I only pay for the painting itself. Packaging, transport, and insurance is paid by the seller so I am not the user of those services. I however, send him monies as disbursement for these services on top of the cost for the painting itself.

The question is: do I have to pay the import VAT of 5% on the value of those three services since they are really disbursements?

Many thanks

Alex

 

[Lavender2306]

Hi Alex,
My answer is Yes, you do.

As far as I understand the scenario: you are the buyer, importing a painting from outside the EU, and the seller, owner of the painting pays for the packaging, transport and insurance?
But if you pay disburse him the money for these services then the seller doesn't bear the cost of those services. You must be an agent and you have a principal on whose behalf you import this painting? and the money for the packaging, transport and insurance come from that principal?
However, for Customs you act as an importer and to them the cost of such services should be included when calculating the value for Import VAT valuation purposes. See:
Imports and VAT (Notice 702)
3.1 Value for import VAT

How to work out the value of imported goods for VAT
The value for VAT of imported goods is their customs value, determined according to the customs rules described in Notice 252: valuation of imported goods for customs purposes, VAT and trade statistics, plus, if not already included in the price:

• all incidental expenses such as commission, packing, transport and insurance costs incurred up to the goods’ first destination in the UK
• all such incidental expenses where they result from transport to a further place of destination in the EU if that place is known at the time of importation
• any Customs Duty or levy payable on importation into the UK
• any Excise Duty or other charges payable on importation into the UK (except the VAT itself)

Let me know if you have any further queries.
Thanks.

 

[strategie]

Hi Alex,
My answer is Yes, you do.

As far as I understand the scenario: you are the buyer, importing a painting from outside the EU, and the seller, owner of the painting pays for the packaging, transport and insurance?
But if you pay disburse him the money for these services then the seller doesn't bear the cost of those services. You must be an agent and you have a principal on whose behalf you import this painting? and the money for the packaging, transport and insurance come from that principal?
However, for Customs you act as an importer and to them the cost of such services should be included when calculating the value for Import VAT valuation purposes. See:
Imports and VAT (Notice 702)
3.1 Value for import VAT

How to work out the value of imported goods for VAT

• all incidental expenses such as commission, packing, transport and insurance costs incurred up to the goods’ first destination in the UK
• all such incidental expenses where they result from transport to a further place of destination in the EU if that place is known at the time of importation
• any Customs Duty or levy payable on importation into the UK
• any Excise Duty or other charges payable on importation into the UK (except the VAT itself)

Let me know if you have any further queries.
Thanks.

Hello Lavander2306

thank you so much for your explanation.

Just to clarify further the case I will illustrate it with concrete figures.

cost of painting £1000
cost of Shipping £100
cost of Insurance £30
cost of packaging and handling £10

I am an agent. In reality I never buy the painting from the painter because I just pass the cost of the painting to my customer, but I understand that in theory and for the accounting purposes it still counts as a buy-sell transaction.

So if I then do buy that painting for £1000 and pay %5 import VAT it will cost me £1050.

Now, if I was the beneficiary of shipping, insurance and other incidental costs, then to me it would make sense that I also pay 5% import VAT on all those components. However, the painter insures the painting for his own insurable interest, he also pays for shipping (which includes the local VAT outside of the EU), and I just disburse that amount of money to him so I presume that in this case shipping, insurance and packaging don't attract import VAT.

Also, I don't think I can transfer this import VAT to the end customer who buys the painting because the retail price of the painting does explicitly shows shipping, insurance and packaging and it is not an option for the end buyer to take it or leave it, although technically speaking it is the end buyer who finances everything: the painting itself, shipping, insurance and packaging.

Thank you very much.

Regards

Alex

 

[Lavender2306]

Hi Alex,

I am sorry to say this, but the added details haven’t changed my view, the services of shipping, packaging and insurance, that it’s cost of insurance of the painting while it is in transit, will be included in valuation for import vat purposes. Without these services the importation would not be possible:
-shipping cost incur to get the painting from overseas to the first destination in the UK;
- packaging is necessary for obvious reasons;
-insurance is probably required by freight companies.
You said the seller pays, but gets reimbursed his money for these services. And you get the money from the ultimate buyer of the painting.
So I think you should include these costs into your calculations of the margin for VAT purposes.

And import VAT you pay should be a part of your purchasing price under the margin scheme.

 

[strategie]

Hi Lavander2306

Thank you so much for this explanation. If the ultimate beneficiary of the painting sold is the buyer himself and not the painter who technically sent, packed and handled the painting and was eventually reimbursed for all that by the buyers money, then yes, I can see why %5 import VAT is chargeable.

What happens if the buyer resides in, say, Germany or some other EU country and my business is UK based?

Also, I presume that if the painting is shipped outside EU that there is no 5% import VAT.

Thank you

Alex