11 December 2017
The Midlands is, and always has been, at the heart of British manufacturing, contributing to UK exports year on year, and business continue to invest in their future.
One area where investment may occur is in tooling charges – that is, investing in new tooling for the next generation of products/sales.
Whilst tooling can be made and used in the UK, some businesses choose to have some components manufactured in China/overseas and those components shipped to the UK. The overseas producer may use their own tools, or more likely, ask for a contribution to the making of a new tool. Some UK businesses may actually fund the entire cost of the tool and own it, albeit it remains overseas where it is put to work.
There is a little known piece of legislation that may catch you out if you are funding overseas tooling. It’s best by way of example :-
A manufacturer in China makes widgets and a UK business imports them. The widgets will be subject to import duty and VAT charges upon arrival in the UK. It is possible for the UK business to contribute towards the cost of the tooling in China by paying an amount of money upfront. The result is the per item cost of making the widgets is now less. So when UK business imports the goods, they cost less and subsequently there is less duty and VAT to be paid.
HMRC have legislation which remedies this kind of arrangement. If HMRC identify a UK business has subsidised the tooling overseas, HMRC can raise an assessment for the amount of the subsidy to make up the difference in the reduced duty paid for the goods – in effect the assessment balances the duty lost by having subsidised the cost of making them.
It’s a pretty obscure rule, and subsidising the tooling is not against the law, just a case of the taxman getting his fair slice of duty and VAT. We have come across a number of businesses this has affected recently as HMRC recognise a rich vein to tap when they see one. The assessments are low value (£1,000-£5,000) but will still be unwelcome, as will the penalties and interest…. but at least you know about it now.
https://www.gov.uk/government/publications/notice-252-valuation-of-imported-goods-for-customs-purposes-vat-and-trade-statistics/notice-252-valuation-of-imported-goods-for-customs-purposes-vat-and-trade-statistics
Don’t leave this to chance, so speak to your advisors or speak to us, our VAT advice is not as expensive as you think. VAT.tamworth@hwca.com
