TC09676 - [2025] UKFTT 01278 (TC)

As is to be expected, the domestic legislation closely follows the PVD although does not refer to the concept of “cost components”.

Section 1 Value Added Tax Act 1994 (“VATA”) explains that VAT is charged both on the supply of goods and services as well as “on the importation of goods into the United Kingdom” (s 1(1)(c) VATA).

The VAT which can be deducted by a taxable person is referred to as “input tax”. Section 24 VATA provides that:

“(1)

Subject to the following provisions of this section, “input tax”, in relation to a taxable person, means the following tax, that is to say –

(a)

VAT on the supply to him of any goods or services;

(b)

…; and

(c)

VAT paid or payable by him on the importation of any goods,

being (in each case) goods or services used or to be used for the purposes of any business carried on or to be carried on by him.”

Section 25 VATA confirms that a taxable person is entitled to a credit for any input tax which is allowable under s 26, which in turn provides that input tax is allowable if it is attributable to taxable supplies.

The combined effect of these provisions is that, in line with Article 168 PVD, a deduction for import VAT is available if the goods are used for the purpose of taxable supplies made by the taxable person.

Regulation 29 Value Added Tax Regulations 1995 (“VATR”) contains an additional condition for the deduction of input tax in respect of an importation of goods which is that the person claiming the deduction must “hold a document authenticated or issued by the proper officer, showing the claimant as importer, consignee or owner …” (Regulation 29(2)(c) VATR).

Regulation 29 VATR is slightly different to Article 178 PVD as it refers to the taxable person not only being the importer or consignee but also potentially being the owner. As Mr Sykes points out, this carries an inference that there are circumstances in which an importer or consignee who is not the owner of the goods may obtain an input tax credit for any import VAT.

Section 27 VATA deals with a situation where goods which belong to another person are imported by a taxable person and are used for private purposes. It reads as follows:

“27 Goods imported for private purposes

(1)

Where goods are imported by a taxable personand -

(a) at the time of importation they belong wholly or partly to another person; and

(b) the purposes for which they are to be used include private purposes either of himself or of the other,

VAT paid or payable by the taxable person on the importation of the goods shall not be regarded as input tax to be deducted or credited under s 25; but he may make a separate claim to the Commissioners for it to be repaid.

(2)

The Commissioners shall allow the claim if they are satisfied that to disallow it would result, in effect, in a double charge to VAT; and where they allow it they shall do so only to the extent necessary to avoid the double charge.

(3)

In considering a claim under this section, the Commissioners shall have regard to the circumstances of the importation and, so far as appearing to them to be relevant, things done with, or occurring in relation to, the goods at any subsequent time.

(4)

Any amount allowed by the Commissioners on the claim shall be paid by them to the taxable person.

(5)

The reference above to a person’s private purposes is to purposes which are not those of any business carried on by him.”

Mr Sykes makes two points in relation to s 27 VATA. The first is that the part of s 27(1) which states that the import VAT is not input tax which can be deducted would be unnecessary if HMRC are right that import VAT paid by someone who is not the owner of the goods cannot be deducted as input tax in any event.

The second is that if, under EU law, the import VAT cannot be deducted, the domestic legislation cannot be interpreted in a way which is consistent with EU law under the Marleasing principle as it would be contrary to the clear terms of s 27 VATA.

I will return to both of these points in due course. However, before doing so, it is appropriate to look at the case law (both EU and domestic) which sets out the principles to be applied in interpreting the relevant legislation.