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Claim overseas VAT by 30 September

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20th Sep 2016
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Neil Warren has tips on how to reclaim VAT paid in other EU countries and also pitfalls to avoid.

The deadline to claim VAT on business expenses incurred in other EU countries in the calendar year ending 31 December 2015 is 30 September 2016.

Case study 1

I am a UK-based consultant and VAT registered in the UK. My biggest client is a business based in Germany. I spend two weeks each month in Berlin, staying in hotels, buying food in restaurants and buying small items to do with the business. All of these expenses incur German VAT at 19%.

I know I can’t claim German VAT on my UK VAT return so how can my business recover this VAT? I don’t need to register for German VAT because my customer deals with the VAT on his own return by doing the reverse charge under the general B2B rule. What are the key deadlines I need to meet?

Timing issues

An online claim is made to HMRC, who then forward the claim (electronically) to the German tax authorities. The latter have four months to process the claim and make payment or raise queries for extra information. If the German tax authority does not meet this deadline, it is liable to pay interest for the late payment period.

Here are some important points:

  • The deadline to claim any expenses incurred in the calendar year is always nine months after the end of the year; i.e. 30 September. This deadline window applies throughout the EU.
  • There is no scope to submit late claims. If the deadline date is missed, the refund opportunity is lost.
  • The best approach for a business that regularly pays overseas VAT in another EU country is to make quarterly claims. This is the minimum claim period under the refund system, apart from the final one of the year when a claim can be made from the date of the previous claim to 31 December.
  • The best source of information on the claims procedure is HMRC’s VAT Notice 723A (section 3).

Potential pitfalls

A common mistake is to think that each EU country has the same non-deductible input tax categories as we have in the UK, such as business entertaining expenses. This is not correct. Many EU countries block input tax claims on road fuel and accommodation expenses, so you need to research the VAT rules for each country.

Don’t forget that a claim for VAT recovery can only be made if tax was correctly charged by the supplier.

Case study 2

For my work in Berlin, I used the services of a German-based computer contractor who charged 1,000 Euros plus German VAT for his services.

If I seek to recover this VAT from the German tax authorities with a refund claim, it will be rejected. Even though the German contractor is based in Germany and performed his services in Germany, the place of supply is UK i.e. where I am based as the customer. I must do the reverse charge on my UK VAT return and contact him for a VAT credit.

Delayed claims

How long will it take for the VAT to be repaid once a claim has been made? The easy answer is ‘no more than four months’ and eight months at the most if queries are raised about the claim (Notice 723A, para 2.18). However, some tax authorities (such as UK and Republic of Ireland) have a better record at paying claims than others. I don’t want to name specific authorities with a bad reputation because I have a few Italian friends, and wouldn’t want to upset them by naming and shaming their country.

Horror VAT case

The director of Ppig Ltd (TC04665) wrongly thought he could claim VAT paid in the Czech Republic on his UK VAT return. HMRC raised an assessment for £63,351 going back four years. The problem with this outcome was that Mr MacMillan (the director) was then time barred from claiming most of this VAT through the EU refund system.

The message is clear: act promptly to avoid missing the annual 30 September deadline date.

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Replies (2)

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By Paul Hawes
20th Sep 2016 14:21

Hi Neil,

Quick question on the first case study. The guidance from HMRC says you can't claim a refund from a country where you make a supply unless the customer pays VAT on your services/goods. Is the customer counted as paying VAT under the reverse charge system then? What exactly defines the customer as paying VAT? Thanks.

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Neil Warren
By Neil Warren
21st Sep 2016 10:47

Hello Paul - spot on with what you say - the 'reverse charge' means the customer is paying the VAT - hence why the overseas supplier can then get his VAT refund.

Neil

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