TC09676 - [2025] UKFTT 01278 (TC)

The facts are not in dispute. Although both parties provided witness statements, the content of those statements was accepted and none of the witnesses were called to give oral evidence. As well as the witness statements, the Tribunal also had a bundle of correspondence and documents. Based on this evidence, the relevant background facts can be summarised relatively briefly.

TSI Inc is a US company. TSI is a subsidiary of TSI Inc. There is another subsidiary based in Germany, TSI GmbH. The group manufactures scientific equipment mainly used for air and environmental measurement.

The main activity of TSI in the UK is the service, repair and calibration of TSI group products which have been sold to customers around the world. At no point does TSI become the owner of the goods which remain in the ownership of the customers.

Where the goods are owned by customers outside the UK, they have to be imported into the UK to enable TSI to carry out its services. Some of the items are sent direct to TSI by the customers. However, the majority are sent to TSI in Germany and then imported into the UK from there. In a small number of cases, TSI has to send items to TSI Inc for the repair to be carried out. The goods are sent back to TSI by TSI Inc and then returned by TSI to the customer.

TSI uses a number of shippers (such as UPS, FedEx and DHL). TSI is named as the importer and pays the charges made by the shipping company for dealing with the import declaration and customs clearance formalities on behalf of TSI as well as paying the import VAT. The customer pays the actual cost of shipping to the UK or to TSI in Germany. Where goods are sent from TSI in Germany to TSI in the UK, TSI in Germany pays the shipping costs.

The costs incurred by TSI in importing the goods into the UK are taken into account in the charges made by TSI to its customers for the services which it provides. These costs are however relatively small and are not separately itemised.

Despite a VAT audit in 2019, HMRC did not question TSI’s practice of claiming the import VAT as input tax until February 2023 when it raised queries in relation to the VAT return for the 01/23 VAT period. It was this that led to HMRC’s decision to refuse the deduction of the import VAT as input tax and to the issuing of VAT assessments for prior VAT periods going back to the 10/19 VAT period.