FTT Confirms Zero-Rating for Direct Exports by Procurement International Ltd: HMRC’s Dual Supply Argument Rejected

The First-tier Tribunal (FTT) examined whether the supplies made by UK-based Procurement International Ltd (the Appellant) to UK-based reward programme operators (RPOs) were correctly classified as direct exports and thus eligible for VAT zero-rating. These RPOs provided goods to their customers’ employees or clients (Reward Recipients) outside the EU (pre-Brexit) or UK (post-Brexit), with the Appellant shipping the goods directly to the Reward Recipients.

HMRC argued that the Appellant made two separate supplies: one of goods and one of shipping services to the RPOs. They claimed that the supply of goods occurred when the goods were allocated to a specific order while still in the Appellant’s UK warehouse. If this were true, the supplies could not be zero-rated as direct exports under VAT rules, nor as indirect exports since the RPO was UK-based.

The FTT rejected HMRC’s argument as “fanciful”, finding that the Appellant made a single supply of delivered goods. This supply was considered to occur when the goods were delivered to the recipient, not when they were in the warehouse. Therefore, the Appellant was entitled to zero-rate the supply as direct exports.

In reaching its decision, the FTT considered several factors, including the contractual terms to determine if delivery was an inseparable component of the supply, INCOTERMS, the point at which title and risk in the goods transferred in the supply chain, and previous decisions in ASOS Plc v HMRC [2018] UKFTT 343 (TC) and HMRC v The Honourable Society of Middle Temple [2013] UKUT 250 (TC).

Key takeaway 

This case underscores the need to agree clear contractual terms, maintain full and complete documentation, and consistently review the supply chain for any tax inefficiencies. These practices are essential for effectively navigating cross-border VAT complexities, especially as business models evolve.

Reference

Procurement International Ltd v Revenue and Customs Commissioners [2024] UKFTT 949 (TC)