Import VAT paid otherwise than by the owner of imported goods

The FTT has again considered the input VAT position of an importer, concluding, in agreement with the conclusion in the earlier decision of Piramal Healthcare UK Ltd, that an importer who is not the owner of the goods imported has, in general, no right to recover import VAT charged on the cost or value of the imported goods, since that cost or value is not a cost component of its onward supplies: TSI Instruments Ltd v HMRC [2025] UKFTT 1278.

Background

TSI Instruments Ltd (TSI) is a UK company that imports scientific equipment into the UK for repair and servicing. The goods remain owned by TSI’s customers throughout and TSI never acquires ownership of the imported goods. Between 2019 and 2023, TSI paid import VAT on imported goods and claimed input tax credit for this VAT. HMRC rejected the claim on the basis that TSI was not entitled to deduct the import VAT as input tax, since only the owner of the goods can do so. TSI appealed, contending that ownership is not a requirement for input tax deduction, provided the goods are imported for the purposes of its taxable business and it bears the import costs.

FTT decision

Essentially the same issue was considered in Piramal Healthcare UK Ltd v HMRC [2023] UKFTT 891, where the Tribunal (with the same judge) found in favour of HMRC, holding that a non-owner importer could not deduct import VAT as input tax. It was clear from CJEU decisions that import VAT could only be deducted where it was a cost component of the taxpayer’s onward supplies. This required a direct and immediate link with those onward supplies. In the case of an importer who did not own the goods, the import VAT on the value of the goods was not a cost component of the onward supplies using those goods.

However, TSI advanced additional arguments, not raised in Piramal. In particular, TSI argued that it was possible to distinguish between the situation where the cost/value of the goods is a cost component of onward supplies and where the costs of importation are a cost component. TSI argued that, based on the wording of the CJEU judgment in Weindel (Case C621/19), it was sufficient to show a direct and immediate link where the costs of importation are a cost component of the onward supplies.

The FTT has dismissed TSI’s appeal, confirming the approach in Piramal. The wording relied on by TSI in Weindel did not indicate that the CJEU had widened its approach. As the FTT noted: “Had the CJEU in Weindel wanted to develop the law in the way suggested … by deciding that the relevant link could be established if the taxable person had incurred importation costs which were reflected in the price of specific output transactions rather than the cost or value of the goods themselves being reflected in those transactions, it is surprising that the CJEU did not explain that it was taking a somewhat different view to the Court in DSV and the guidance provided by the VAT Council and it is very hard to understand how the CJEU in Weindel could have concluded that it was entitled to deal with the referral by way of a reasoned order.”

TSI also argued that the “input transaction which must have a direct and immediate link with the relevant output transactions” can be seen as the transaction constituted by the import of the goods. The FTT did not consider that this approach made any difference to the outcome, noting that “where the VAT relates to the importation of goods (as opposed to the services related to the import) the question … is whether the goods have been used for the purposes of the output transactions not whether any services connected to the import (or the cost of such services) have such a link. As the import VAT is calculated by reference to the market value of the goods it makes sense for this link to be determined by reference to the cost or value of the goods as opposed to the costs of importation”.

Equally, the mere fact that it was impossible to carry out the repair services on the goods without importing them did not provide a direct and immediate link between the import VAT on the value of the goods and the repair services. It would be perfectly possible for the goods to be imported with the customers paying the import VAT. It was not impossible for TSI to provide the services without importing the items itself, therefore.

As a result, the FTT concluded that import VAT can only be credited as input tax where the taxable person is the owner of the goods (or has the right to dispose of the goods as their owner) or where the cost or value of the goods is reflected in the price of specific output transactions or in the price of goods and services supplied in the course of their economic activities.

Finally, the FTT rejected that this approach in any way was in breach of the principle of fiscal neutrality, in the sense that it resulted in a fully taxable business incurring irrecoverable input VAT. TSI simply failed to meet the requirements for input VAT deduction in this case. In addition, the UK domestic provisions implementing these rules could (despite some potential ambiguity) be read in conformity with EU law in this regard.

Comment

The decision is ultimately in line with HMRC’s belated guidance published in its R&C Brief 02/19. However, the position regarding the correct recovery of import VAT was not always as clear cut, hence the degree of ambiguity in the UK legislation. The additional arguments raised by TSI in this case were largely based on a very specific reading of wording in the Weindel decision and the FTT was, ultimately, unimpressed with the distinction TSI sought to draw between a reference made by the CJEU to “import costs” incorporated into the price of its output transactions as opposed to using the more precise terminology of the value of the goods imported being so incorporated.