Import VAT recovery for non-owners: key takeaways from TSI Instruments Limited vs HMRC case

Overview

The recent First-tier Tribunal (FTT) decision in a case between TSI Instruments Limited vs HMRC, offers a significant clarification on import VAT recovery for non-owners of goods. This case is particularly relevant for businesses involved in cross-border servicing or repair of goods they do not own.

Background

TSI Instruments Limited imported scientific equipment into the UK for the purpose of repair and servicing. Although TSI was not the owner of the goods, it paid import VAT and sought to recover it as input tax. HMRC challenged this recovery, relying on its internal manual (VIT3300), which restricts input tax recovery to the owner of the goods. HMRC assessed TSI for £8.5 million in VAT.

TSI’s argument

TSI contended that the import VAT was recoverable because there was a direct and immediate link between the importation costs and its taxable outputs, namely, the repair services. They argued that VAT recovery should not be limited to ownership but should also consider who bears the cost of importation.

FTT’s decision

The Tribunal rejected TSI’s appeal, affirming HMRC’s position. It held that under both UK and EU VAT law, ownership is a key criterion for import VAT recovery.

The FTT found that:

• TSI was not the owner of the goods.
• The cost or value of the imported goods was not reflected in the price of the repair services.
• There was no sufficient link between the importation costs and TSI’s taxable outputs.

The Tribunal also distinguished this case from Piramal Healthcare UK Limited, noting that the earlier decision did not adequately address the distinction between importation costs and the value of the goods.

Implications for businesses

This decision reinforces HMRC’s strict interpretation of VAT recovery rules. Businesses importing goods they do not own, especially for repair or servicing, should carefully assess their VAT recovery position.

Key takeaways include:

• Ownership remains a central requirement for import VAT recovery.
• Simply bearing the cost of importation does not entitle a business to reclaim VAT.
• Contracts and pricing structures should be reviewed to ensure compliance with VAT recovery rules.

Summary

The TSI Instruments case serves as a cautionary tale for service providers operating in international contexts. It underscores the importance of aligning commercial arrangements with VAT legislation and HMRC guidance.

If your business is involved in importing goods for repair, servicing, or other non-ownership activities, and you’re unsure about your VAT recovery position, get in touch with our VAT advisory team today. We can help you assess your risk exposure, review your contracts, and ensure your VAT strategy is fully compliant and optimized.

Please get in touch if you would like to discuss any of the above in further detail.