VAT on Overseas Goods: Place of Supply Rules and UK VAT Treatment Explained

February 16, 2026
By Merranti

VAT on Overseas Goods: Place of Supply Rules and UK VAT Treatment Explained

When UK businesses trade internationally, VAT treatment is often less intuitive than expected. One of the most common areas of confusion arises where goods are bought and sold overseas and never physically enter the UK. Businesses are often unsure whether UK VAT should be charged, how the transactions should be reported on the VAT return, and what evidence HMRC will expect to see.

This article explains the place of supply rules for goods, how they apply to overseas transactions, and the UK VAT reporting position in common scenarios, including supplies involving non-UK and EU counterparties.

The basic place of supply rule for goods

For VAT purposes, the place of supply of goods is generally where the goods are physically located at the time they are supplied (that is, when ownership is transferred or the goods are allocated to the customer).

In straightforward cases:

Goods located in the UK at the time of supply are treated as supplied in the UK and are subject to UK VAT.
Where goods are supplied from the UK to a customer overseas, the supply may be zero-rated as an export, provided the supplier meets HMRC’s conditions, including holding appropriate export evidence.

Difficulties tend to arise where goods are traded internationally but never pass through the UK at all.

Goods that never come to the UK

It is increasingly common for UK businesses to act as intermediaries, purchasing goods from one overseas supplier and arranging delivery directly to an overseas customer. These arrangements are commercially efficient but often misunderstood from a VAT perspective.

Example: overseas purchase and overseas sale

Company A is established and VAT-registered in the UK.
It purchases goods from Company B in China and arranges for those goods to be delivered directly to Company C in the USA. The goods are shipped from China to the USA and never enter the UK.

This scenario raises several questions for Company A:

Is UK VAT chargeable on the sale?
Should the sale be included on the UK VAT return?
What evidence will HMRC expect?

VAT analysis: applying the place of supply rules

To determine the VAT treatment, Company A must return to the basic place of supply rule:

Where are the goods located at the time they are supplied to the customer?
Do the goods ever enter the UK?

In this example:

The goods are located in China when they are allocated to Company C.
The goods never come to the UK.

As a result, the place of supply is outside the UK, and the transaction is outside the scope of UK VAT. No UK VAT is charged on the sale.

VAT return reporting for out-of-scope goods

Although no UK VAT is due, the transaction is not ignored entirely for VAT return purposes.

In this scenario:

The value of the sale should be included in Box 6 of Company A’s UK VAT return (total value of sales).
The purchase should be included in Box 7 (total value of purchases).

No amounts are entered in Boxes 1, 2, 3 or 4, as no UK VAT has been charged or incurred.

Evidence and HMRC inspections

Unlike UK exports, there is no formal export documentation available to support zero-rating, because the supply is not an export from the UK. This can sometimes cause confusion during HMRC VAT inspections.

To support the VAT treatment, businesses should retain commercial evidence demonstrating that:

the goods were purchased overseas, and
the goods were delivered directly to an overseas customer.

Useful evidence may include:

supplier invoices,
shipping or freight documents,
bills of lading,
contracts or correspondence showing delivery terms.

Clear documentation is essential to demonstrate that the supply was genuinely outside the scope of UK VAT.

Goods sold during transit (“on the high seas”)

Similar principles apply where goods are sold while in transit, for example while being shipped between two non-UK locations.

Provided the goods:

do not physically enter the UK, and
are not located in the UK at the time of supply,

the place of supply will remain outside the UK and the transaction will be outside the scope of UK VAT.

Transactions involving EU suppliers and customers

Different and more complex rules apply where goods move within the EU, even if the UK business does not physically handle them.

Example: EU-to-EU supply involving a UK business

Company A (UK-based) purchases goods from Company B in Germany.
The goods are delivered directly from Germany to Company C in France.

Since the UK left the EU, this scenario no longer benefits from the old intra-EU simplifications for UK VAT-registered businesses.

VAT consequences for the UK business

The sale by Company B (Germany) to Company A:

is not zero-rated, because the goods do not leave the EU and Company A is not EU-VAT registered.
German VAT is charged to Company A.

Under EU place of supply rules:

Company A is treated as acquiring the goods in Germany.
Company A is therefore making a taxable supply in Germany and is required to register for VAT in Germany.

Once registered:

Company A can recover the German VAT charged by Company B via its German VAT return.
Company A can zero-rate its onward supply to Company C in France as an intra-EU supply, provided Company C is VAT-registered in France and supplies a valid French VAT number.

EU triangulation and future transactions

Once Company A is VAT-registered in Germany, it may be able to use the EU triangulation simplification for future transactions involving three VAT-registered businesses in three different EU Member States.

This can reduce compliance burdens, but only where all conditions are met. Careful analysis is required, particularly post-Brexit, as UK businesses often underestimate their EU VAT obligations.

Key risks and common errors

Common VAT mistakes in overseas goods transactions include:

incorrectly zero-rating supplies that are actually outside the scope,
failing to include out-of-scope sales in Box 6 of the VAT return,
assuming no VAT registration is required in the EU, and
inadequate evidence to support the VAT position.

These errors can lead to assessments, penalties and significant compliance issues if not addressed promptly.

Practical tip

If your business buys and sells goods that never enter the UK, no UK VAT will usually be due. However, where goods move within the EU, you may be required to register for VAT in another Member State, even if you are established solely in the UK.

How we can help

International goods transactions can create unexpected VAT obligations, particularly since Brexit. If your business trades in goods that move overseas or within the EU, we can help you determine the correct VAT treatment, assess whether overseas VAT registrations are required, and ensure your VAT returns are completed accurately. Please contact us to review your arrangements.