There is a specific rule applicable to the supply of machine tools used to manufacture goods for export. The rules are set out in VAT notice 701/22: https://www.gov.uk/guidance/zero-rate-tools-that-manufacture-goods-for-export-notice-70122
Machine tools are goods used in the manufacture of other goods such as templates, moulds, jigs, and similar tools. If the customer specifically requests that your client makes or buys the tooling, and your client makes a specific charge for the tool and then uses it to manufacture goods for that customer, then there is a separate supply of the tool.
This is zero-rated if your client meets the following conditions:
- They supply the machine tool to an overseas trader;
- They get a signed statement from their customer confirming that they are neither registered nor liable to be registered for VAT in the UK and are not in the EU;
- They use the machine tool to manufacture goods that are exported outside the EU, and
- They hold the export evidence for those goods.
Therefore, as long as your client holds the required evidence above, they can zero-rate the machine tool.
There is also a similar provision where the tooling will be used to manufacture goods that will be dispatched to the EU. The conditions for this are set out in section 3 to the VAT notice.
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