Summary. Learn how the EU VAT refund simplifies reclaiming VAT on purchases made abroad. Since January 1, 2010, an EU directive streamlines refunds for VAT-registered businesses via tax authority websites. This applies to goods and services, reducing VAT costs for non-resident businesses. Ensure proper procedures to avoid HMRC rejections, submit by September 30th.
You’re on holiday in Europe and you find an item that would be perfect for your office, but reclaiming VAT on EU purchases made abroad can be a daunting prospect. You question whether you should buy it and whether you would be able to reclaim the foreign VAT you pay. So, how does an EU VAT refund work?
EU VAT refund directive
The EU directive that you must follow took effect on 1 January 2010. It introduced a new procedure for businesses established and registered for VAT purposes within the EU to request a refund of VAT incurred in other EU countries. The directive allows EU businesses to submit an EU VAT refund form via the website of the tax authorities of the country in which you are VAT registered. Previously, you had to submit claims in hard copy and in the country where you made the purchase. The revised systems work in favour of facilitating and expediting the recovery process of VAT between EU countries.
Goods and services in the EU
Making a business purchase in an EU country where you are not established or VAT-registered incurs significant VAT on your expenditures in that country. However, non-resident businesses should be able to recover some or all of the VAT incurred, thereby reducing the cost.
Goods – Generally, the supply of goods from one EU country to a customer in another EU country is zero-rated provided that you are registered for VAT purposes elsewhere in the EU and you can provide your VAT registration number to the supplier.
Services – Following the implementation of the new rules relating to the supply of services, VAT incurred on acquired services in other EU countries has been considerably reduced, the reason being that these transactions normally have to be reverse charged when back in the UK (or country of establishment).
The problem people have is not being clear on what they can or cannot claim for, resulting in incorrect claims that HMRC will reject.
Where people go wrong
Often the service is confused with imports (goods that you bring back to the UK). Normal VAT rules apply to these purchases. In this instance you should ask the seller to zero-rate the tax, then you would declare the transaction as an import on your UK VAT return. Making sure to zero-rate the tax when making a purchase is crucial because you cannot reclaim foreign tax that you have already paid.
Back in the UK
If you follow the above procedure and do not pay foreign VAT, on your return to the UK you would account for VAT on the goods, then on the same return reclaim any of the VAT that UK rules entitle you to. Generally, you must submit the refund application by September 30th of the calendar year following the refund period.
EU VAT refund on services
You can use the EU VAT refund service for goods bought for your business in another EU country but you did not bring back to the UK, e.g. hotel bills, car hire etc.
Claims must be:
- For a period of at least three months (or less if the period of claim ends 31 December).
- For a period not exceeding twelve months.
- Submitted by 30 September following the calendar year in which the purchase was made.
Need advice?
If you would like VAT advice for businesses then contact Thomas Nock Martin accountants today. Our chartered accountants in Brierley Hill will be happy to talk to you and offer their expert advice. If you require more information on the EU VAT refund procedure, head to our website today. Or, call us on 01384 261300 to speak to a member of our helpful and friendly team.
If you have found this blog helpful, you may wish to read our previous blog on Self-assessment tax returns.
