Refunds of VAT for UK businesses incurring other EC Member States
If a business incurs VAT in another EC Member State it is possible to recover it. It is not claimed on a UK VAT return, but via a special claim process which I have set out below. Unfortunately, this procedure is likely to be unavailable after Brexit. I hope that this is a timely reminder as well as a guide as the deadline for the year of the claim is 30 September.
My next article will look at precisely what VAT is recoverable in each Member State in a country by country guide – here
Claim Process
Gone are the days when a business had to make claims directly to the Member State where VAT was incurred; using numerous, complicated forms, in the language of the Member State of claim, and then waiting months, if not years to hear anything.
Now, a simple online claim to HMRC is all that is required. HMRC then coordinate payment for a business from the relevant country. This is a practical overview of the procedure.
All applications must be submitted using the electronic online system. You must be VAT registered in the UK to obtain a refund.
In order to make a claim a business must meet the following conditions:
- you must not be registered, liable or eligible to be registered in the Member State of Refund
- you must not have any fixed establishment, seat of economic activity, place of business or other residence in the Member State of Refund
- during the refund period you must not have supplied any goods or services in the Member State of refund with the exception of;
a) transport services and ancillary services
b) any goods or services where VAT is payable by the person to whom the supply is made (the reverse charge).
By submitting your application you are declaring that you meet these conditions.
How do I claim?
A separate online application is required for each Member State from which you wish to claim. In order to start an application you must access the relevant online services section and enter standard data into the required fields, along with invoice for expenditure you wish to reclaim.
Period application covers
The refund period must not be more than one calendar year or less than three calendar months. Generally refund periods do not have to cover strict calendar quarters. However, some Member States have their own requirements, and details of these can be obtained from the relevant tax authority.
Minimum amount that may be claimed
If the refund application relates to a period of less than a calendar year, but not less than three months the minimum amount claimable is EUR 400 or the equivalent in national currency.
If the refund application relates to a period of a calendar year or the remainder of a calendar year the minimum amount claimable is EUR 50 or the equivalent in national currency.
Invoices included on the application
Invoices relating to supplies of goods or services with a tax point during the period of the refund application should be included. Additionally, a business may claim for invoices not included in a previous application as long as they relate to the same calendar year.
VAT which cannot be included on a claim
A claim cannot include VAT which has been;
- incorrectly invoiced,
- invoiced in respect of goods despatched to another Member State or exported from the EC
- incurred in respect of non-business activities
Information required from invoices being claimed
- Name and address of your supplier
- Except in cases of importation the VAT identification number or tax reference number of the supplier and the prefix of the Member State of Refund
- Date and number of the invoice or importation document
- Taxable amount and amount of VAT expressed in the currency of the Member State of refund
- The amount of deductible VAT expressed in the currency of the Member State of refund
- Where applicable the deductible proportion
- Nature of the goods and services acquired, described according to the following expenditure codes: Fuel, Transport Hire, Road Tolls, Travel Expenses (taxi, public transport), Accommodation, Food and Restaurant Services, Admissions to Fairs and Exhibitions, Luxuries/Amusements/Entertainment.
If an invoice includes items covering more than one expenditure code the code relating to the highest proportion of expenditure is the one that should be used.
Restriction of applications in respect of partial exemption
A business must apply the appropriate recovery rate for the goods or services purchased against each invoice or importation on your application, and show the amount of VAT recoverable in the appropriate box. The recovery rate to be applied is the last percentage appropriate to the refund period covering the invoice date. Following an annual adjustment, you will not be required to amend refund applications already submitted. The invoices can only be entered once and the percentage to be used is that covering the invoice date.
Restriction of applications in respect of non-business expenses
Expenditure incurred in another Member State that relates to non-business activities is not claimable under the refund scheme.
Language needed on the application
Member States generally require the application to be in their own language they may allow the use of a second language in the free text fields, and English is a common option. The language(s) required by the Member State of Refund will be displayed on the electronic portal as you complete the application.
Invoices which may be required to be submitted electronically
A business may be requested to submit invoices with values of EUR 1,000 or more (EUR 250 or more in the case of fuel) with the application. All other invoices should be retained as they may be requested at a later date by the Member State of Refund.
Claim updates
A business will be informed electronically at the following key stages of the process.
- If your application fails basic validation checks by the electronic portal
- When HMRC forwards your application to the Member State of Refund
- When the Member State of Refund receives the application
- If the Member State of Refund requires additional information from you
- When the Member State of Refund makes its decision
Time limits for submitting an application
Applications must be submitted to HMRC at the latest by 30 September of the calendar year following the refund year and will only be considered submitted if the applicant has completed all of the required standing data fields (see above).
Time limits for the Member State of refund to process an application
The Member State of Refund must notify the applicant of its decision to approve or refuse the application within four months of the date they first received the application.
Payment method
The refund will be paid in the Member State of Refund or, at the applicant’s request, in any other Member State. In the latter case, any bank charges for the transfer will be deducted by the Member State of Refund from the amount to be paid to the applicant.
Error on applications
The electronic portal provides a correction facility whereby a business can recall the original application and amend existing details. You may not, however, add new lines.
Penalties
All Member States take a very serious view of incorrect or false applications. Refunds claimed incorrectly on the basis of incorrect or false information can be recovered and penalties and interest may be imposed and further refund applications suspended.
Applications refused
If the Member State of Refund refuses an application fully or partly they must also notify you of the reasons for refusal.
If this happens you can appeal against the decision using the appeals procedure of that Member State. This means that the normal VAT appeals rules of that Member State on time limits, form of appeal etc., will apply.
Interest on delayed applications
Interest may be payable to you by the Member State of Refund if payment is made after the deadline. If applicable, it will be paid from the day following the deadline up to the date the refund is actually paid. Interest rates must be the same as those applied to refunds of VAT to taxable persons established in the Member State of Refund under the national law of that Member State.
Claims on UK VAT returns
VAT incurred overseas must not be claimed on a UK VAT return. If it is, it is liable to an assessment, penalties and interest levied in the UK by HMRC.