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Here's one for all the VAT gurus

Calling spidersong - re 13th directive claim

So (I know it's annoying, but I'm doing it anyway), a client incurs (correctly charged) VAT in France in the furtherance of his business.

Being below the VAT threshold, he is not VAT registered.

"Can I recover the French VAT" he asks. "No", I say. "You need to be VAT registered." This makes sense; why should he be able to recover French VAT, but not UK VAT, after all.

"But I know other people in the EU that, in similar circumstances, are making such claims through a procedure called 'Intra-communautaire'", he says.

HMRC's guidance clearly says that he must be registered, because the claim requires that he is "a taxable person". And I know that the computer will say no, because I know that the only way to actually ask the computer is to be VAT registered. The guidance goes on to say that any application by someone that isn't a "taxable person", will not be passed on to the other authority.

On looking at the 13th directive, there is indeed a requirement that the claimant be a "taxable person".

However, "taxable person" is defined in the 6th Directive as "any person who, independently , carries out in any place an economic activity, whatever the purpose or results of that activity". Further on, the directive provides for "taxable persons" to be registered, and permits member states to exempt "taxable persons" from registration if they are below permissible thresholds. None of that seems to change the meaning of "taxable person" in the directive though. A "taxable person" is a "business person" in VATA terms, whether or not they are registered, as far as I can see.

So it seems EU business can claim the VAT back, without being registered, but UK businesses can't.

Have I got that right? Do HMRC have it wrong? Are UK businesses missing out?

What's a girl to tell her client?

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09th Nov 2017 12:58

Boince!

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By Ruddles
09th Nov 2017 13:15

At last - a real gem of a question. I believe that HMRC have got it wrong, but hey, what's new?

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to Ruddles
09th Nov 2017 13:41

It certainly is a gem, as one has come to expect of PNL.

Watch out though, there's some severe detritus, only two stops ahead. Let's hope the OP isn't allowed anything sharp.

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09th Nov 2017 14:17

I had always had an understanding that an unregistered trader could reclaim overseas VAT from the relevant authority. Having not come a cross a case in anger, I have never investigated further.

Now I know what you're thinking. How the 'ell does this advance my knowledge or give me any statutory backing for taking this further?

The answer is of course "Not one jot". But how could I resist the opportunity to at least attempt some sort of answer to a PNL question (something as rare as hen's teeth)?

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to paulwakefield1
09th Nov 2017 14:29

"something as rare as hen's teeth"

Nay, and thrice nay,

Something as rare as rocking horse do do!

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09th Nov 2017 15:00

From a purely practical level it seems that all the guidance says from January 2010 all refunds of overseas VAT must be made electronically through HMRC.

To log-on to this service appears to require a VAT registration, so whether or not the EU law permits such a claim (and my belief would be that registration is not essential to be a "taxable person", as suggested), in practice HMRC's website may be the barrier to getting VAT back if this really is the only route for such EU VAT claims now.

On the internet there is some French stuff suggesting an Intra-Community VAT number can be obtained by those not liable to register, so maybe that could be explored?

Wee? Yeah, not too good at French!

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09th Nov 2017 15:07

'Taxable person' does indeed mean 'someone who makes taxable supplies' and can be someone with £1 or well over the threshold, so you can definitely be a TP without being VAT registered.

What have they bought out of interest?

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to Constantly Confused
09th Nov 2017 16:20

It is partly hypothetical, but let's assume that on one particular project they incurred a not insubstantial amount of expense staying at hotels in France.

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09th Nov 2017 15:59

While I suspect that HMRC may have got it wrong due to the definition of "taxable person", the requirement for tax neutrality means that their approach is correct. If a taxable person only makes supplies which are exempt from VAT (or in this case he is exempt from applying VAT by virtue of not being registered) then there is no entitlement to recover VAT charged to him. Therefore, because he does not charge (this would include zero rate) VAT on any of his supplies, he cannot recover any VAT on supplies to him.

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to mbuffery
09th Nov 2017 16:31

I don't disagree. My client's issue though, is that Johnny Foreigner is getting a better deal than he.

However, the service giving rise to the expense is a general rule service to a VAT registered business in France, that will of course, charge itself VAT on the supply. Thus the supply has been taxed in the country from which he wishes to recover the tax that he has been charged.

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09th Nov 2017 16:13

Are we not seeing the wood for the trees? Said client may also be charged VAT on purchases in furtherance of his business in the UK, but he is not VAT registered, so he can not claim back the tax. So why should he be able to claim the tax back on his foreign transactions?

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to The Accountant
09th Nov 2017 16:30

You appear to have missed the point. You're focusing on what the wood is doing, and I'm focusing on what the trees are getting away with.

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By Ruddles
to The Accountant
09th Nov 2017 16:27

The Accountant wrote:
So why should he be able to claim the tax back on his foreign transactions?

Because the legislation says that he can. Whether you think the legislation is wrong, unfair, illogical etc is beside the point. It says what it says, and HMRC's mis-interpretation of it doesn't make them right.

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09th Nov 2017 16:32

Wondering if there's something akin to registering for VAT just for MOSS when under UK limits, that applies to the current situation?

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09th Nov 2017 16:44

The relevant directive 2008/9 requires, in Article 6 that the taxable person in question must carry out transactions which give the right of deduction in his home country. The right of deduction is limited in Article 168 of the recast 6th directive (2006/112/EC) to VAT incurred on goods and services used for tax transactions. Since your client is not charging VAT, then under EU law, he has no right of deduction and consequently no right to recover VAT charged in France.

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to mbuffery
09th Nov 2017 17:12

Thank you!

The HMRC (mis)guidance that I had found referred to the 13th directive, and it was the 13th directive that I was looking at, despite it say "a person not established in the territory of the community" rather than "member state" as I would have expected it too.

So, either the Johnny Foreigners are not in an equivalent position, are misleading him, or there are authorities elsewhere in the EU that are doing it wrong. I suspect one of the former two solutions.

I can't now find the HMRC guidance that mentioned the 13th directive, so the possibility that I got hold of the wrong end of the stick at some point is also out there!

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09th Nov 2017 17:09

Thanks also to all who have contributed.

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By NH
09th Nov 2017 20:31

J'ai parle avec quel qu'un down the pub qui m'a dit qu'il a jamais payer le TVA....
sounds like we aren't so different after all

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to NH
09th Nov 2017 21:01

LA TVA. It's feminine.

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By 356B
10th Nov 2017 10:28

As Miss Piggy already knows, I don't answer "questions" that start with "So". So there!

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14th Nov 2017 12:03

Late to the party but isn't the whole point of VAT that the last person in the chain suffers the tax? Therefore, if you're not VAT registered it should be you because you're not going to pass the tax on to your client. Clearly if the French trader is recovering VAT but not passing it on then this should be a breach of tax rules and the French taxman needs to get their act together.

Or am I trying to use a perfect tax system in a far from imperfect world.... (don't mention the B word!!)

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