An agent acting in his own name
By Jan Garioch
Main points:
HMRC assessed for input VAT because the conditions to qualify for Onward Supply Relief (OSR) were not met.
On appeal to the FTT, the focus fell on whether the appellant acted as an agent with authority to deal with the principal's title to goods.
The FTT held that the appellant did not have that power and was not an agent acting in its own name.
Jan Garioch CA discusses the case Scanwell Logistics (UK) Ltd v HMRC where the First Tier Tribunal (FTT) heard an appeal against HMRC's denial of Onward Supply Relief on the grounds that Scanwell was not acting as an agent in the transfer of title to goods.
Scanwell, a UK based company, arranged for goods to be transported from abroad to countries within the EU. Back in 2012 it was approached by a Czech freight company to work with it. In a typical transaction, Scanwell received notification from the Czech freight company of the arrival of goods and received documents including the bill of lading, the invoice from the Chinese supplier and a packing list. Scanwell was also paid the amount of the customs duty. Scanwell then cleared the goods through Customs and paid the customs duty, arranged release from the shipping company, collected the container in which the goods arrived, inspected and photographed the goods, despatched them on lorries to their eventual destinations and completed consequent documentation like the EC sales list. Scanwell subsequently sent on the invoice addressed to the end customer and produced its own invoice to the Czech freight company for the services it had performed.
HMRC's assessment
In Scanwell's import declarations it claimed exemption from import VAT under Onward Supply Relief (OSR) which eliminates the need to pay VAT on importation and recover it again on removal of the goods from the country. In 2017 HMRC assessed for £ 5.7million of import VAT on the grounds that OSR was not available to Scanwell on these imports. The entitlement to benefit from OSR derives from s. 47(2a) VATA1994 which states that where a supply is made by an agent acting in his own name, that supply will be treated as a supply to the agent and a supply by the agent. HMRC argued that Scanwell was not an agent for the Chinese manufacturer, and certainly not an agent acting in its own name, and therefore could not supply the goods to anyone. However, Scanwell did have an obligation to account for import VAT because s1 VATA1994 specifies that where goods are imported into the UK from outside the EU, VAT is payable as if it were a duty of customs by the person making the entry declaration on the customs form.
Scanwell's counterargument
Scanwell accepted that it did not acquire title to the goods and could not make a supply of them. However, it counter-argued it was acting as agent for the end customers and for the purpose of s.47(2a) VATA1994 it was acting in its own name. It pointed to its standard contracts referring to Scanwell as an 'agent' and stating that it represented the principal. It explained the purpose of the standard contracts was to benefit from OSR and it was 'implicit' that Scanwell intended to be taken as an agent.
The contractual position
On examination of the contractual position, the FTT found that there was no formal contract between Scanwell and the Czech freight company although it was paid by that company for its work. Although invoices from the Chinese manufacturers were addressed as if Scanwell were the import agent, Scanwell had no contract, or even any contact, with those manufacturers. Scanwell did have a standard contract with each end customer which it drafted for the Czech freight company to execute on its behalf. The standard contract says that each end customer appoints Scanwell as its import agent to complete all necessary documentation and make best efforts to ensure swift movement of the product through the UK and on to the EU. The end customers agree 'to pay their appointed factories in China directly for the products shipped to the UK'. Although Scanwell would receive invoices from the factories in China and pass them on to the end customer, there was no obligation on it to be involved in settlement.
The FTT's findings
The FTT accepted that Scanwell acted as agent for the end customer since it was given control over the goods when they arrived. However, the FTT found no evidence that it was given authority to deal with the principal's title to the goods. Even if Scanwell thought its standard contract empowered it to give rise to a transfer of title, at no time did this take place. It was not an agent that could transfer title to the goods or exercise an authority to transfer someone else's title. The fact that Chinese suppliers mentioned Scanwell's name on their invoices suggested to the FTT that they agreed to the arrangements but this was insufficient to allow the conclusion that contracts for the goods were made through Scanwell.
The FTT decided on a 'belt and braces' approach in case it was wrong in its conclusion that Scanwell did not give rise to transfer of title. Therefore, it looked at the question of whether, as required by s42 (2a) VATA1994, Scanwell acted in its own name. Although the invoices from the Chinese suppliers mentioned Scanwell, the FTT found that Scanwell had no contact with them. In addition, since a clause in the standard contract stated that Scanwell had no obligation to pay them, then any obligation created was negligible. The FTT accepted that when Scanwell completed customs forms it acted in its own name and created obligations for itself but that was insufficient for s42(2a) purposes. That provision requires that the agent acting in his own name should transfer title in the goods and the FTT held that Scanwell does not do so. Consequently, Scanwell's appeal was dismissed and a hard lesson was given that the term 'agent' has a precise and technical definition.
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