Brace for Brexit 14: VAT refunds for overseas expensesby
Neil Warren tests the VAT refund system that will apply from 1 January 2021 by considering an imaginary claim to the Dutch tax authorities.
Imagine you travel to The Netherlands to meet an important business client, and incur the following expenses while you are there: car hire, road fuel, hotel bills, food and drink for subsistence, a separate meal for entertaining the client. All those expenses include Dutch VAT, which in total amounts to €500.
Domestic input tax rules
The first challenge is to check the input tax rules in The Netherlands to see if any of the above items are non-deductible under local tax law. There is good and bad news here; Dutch tax law blocks input tax on business entertaining, as well as food and drink purchased in hotels, cafes and restaurants, so that reduces our claim to €400.
Current refund procedure
For expenses incurred until and including 31 December 2020, a VAT registered UK business can reclaim this Dutch VAT by doing an online claim to HMRC as part of the EU refund system. The claim is forwarded to the Dutch tax authorities, which will review the claim and repay it within six months. Claims to 31 December can be submitted to HMRC up until 11pm on 31 March 2021. Until this date, previous claims can be viewed and amended as well. The VAT being claimed must consider any partial exemption issues.
Refund procedure from 2021
From 1 January 2021, the UK will no longer be treated as an EU country under the Brexit transitional arrangement. A UK based business must reclaim VAT paid in EU countries by way of a separate process, submitting what is commonly known as a 13th Directive claim. The claims must be submitted directly to the tax authority on a paper form, usually in the country’s own language. Each EU country will have different refund claim deadline dates.
How easy will it be to claim my imaginary Dutch VAT from 1 January 2021? What paperwork must I submit to the Dutch tax authorities? Where do I find this information? The good news is that the EU Commission provides information on the refund procedures relevant to each EU country:
I found the link for The Netherlands and the information was very clear. A claim can be submitted each quarter and the deadline for calendar year claims is the following 30 June. Most importantly, the claim form can be submitted in Dutch, English or German.
I found the claim form on the website of the Dutch tax authority and was able to download it in pdf format, including the address where it must be sent with original tax invoices. Each invoice must be listed on the eight-page form.
As a separate exercise, I wondered if the Polish tax authorities (as another large EU country) would accept refund claims in English, like our Dutch friends. I checked the above link, and there was not such a good result. The VAT refund claims must be submitted in Polish. I only know two Polish words….bardzo dobre!
Let’s try another country: Bulgaria. Bad news again, the claim must be completed in Bulgarian.
The main priority is to ensure that clients are not incorrectly charged foreign VAT when the UK is no longer treated as a member of the EU. It is likely that some EU suppliers will assume that Brexit means more VAT should be charged on certain services incurred by UK businesses because they think UK issued VAT numbers will not be accepted as evidence of B2B status. That is incorrect.
For 13th Directive claims, it is likely to come down to a cost/benefit analysis. Will the time spent dealing with the paperwork and learning Hungarian be worthwhile to claim €100 of VAT?
Alternatively, the UK business could ask a VAT claims specialist to deal with the EU VAT refund claim. If their fee is based on a percentage of the VAT rather than a fixed amount, this could be worthwhile.