Overview of the Pavan Ltd Case
Export businesses often have the opportunity to benefit from zero-rated sales, but the key requirement for availing this advantage is to have evidence of export. The Pavan Ltd case (TC8712) is a prime example of how the complexity of VAT regulations and the approach taken by HM Revenue & Customs (HMRC) can lead to confusion and misinterpretation of the rules.
Details of the Case
In this case, the taxpayer, Pavan Ltd, was buying medical syringes from a UK supplier, repackaging them at his home, and then sending them to customers based in the USA. The packages had invoices and CP72 export documents, and were sent via the Post Office with certificates of postings and tracking details. The taxpayer had proper records and could produce both official and commercial evidence. However, there were some anomalies in the paperwork, such as the absence of payment details from some USA customers and the stated values on the parcels being lower than the actual value.
VAT Notice 703
VAT Notice 703, paragraph 3.3, states that a supply of goods sent outside the UK can be zero-rated if the business makes sure that the goods are exported from the UK within the specified time limit and obtains official or commercial evidence of export within the same time limit, along with supplementary evidence of the export transaction. The time limit for obtaining the relevant evidence is three months from the time of the supply.
Paragraph 6.1 of the same notice sets out the evidence required for zero-rating, which includes official or commercial evidence supported by supplementary evidence. The latter can be in the form of a customer order, export invoice, consignment note, or evidence of payment.
HMRC’s Approach and the Tribunal’s Conclusion
HMRC’s approach was to assess Pavan Ltd because the taxpayer had not supplied the evidence of export to HMRC within three months. However, the tribunal concluded that HMRC had made two errors in law.
Firstly, the three-month period was not meant to provide evidence to HMRC, but to hold the evidence in the records within three months of the transaction.
Secondly, HMRC was of the view that all evidence of export must be contained within the CP72, ignoring established case law and its own guidance that a basket of evidence from different sources is acceptable.
The tribunal concluded that HMRC’s approach was illogical, perpetuated by the reviewing officer, and compounded by its statement of case and skeleton argument.
Conclusion
The Pavan Ltd case is a cautionary tale for export businesses, highlighting the importance of staying informed about VAT regulations and seeking professional advice when necessary.
It is also concerning that HMRC could be so wrong on such a basic concept, and it took a tribunal to apply the actual law. The degradation of what was once a respected service is a matter of concern, and if HMRC had succeeded in this case, the implications for export businesses would have been severe.
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