Recovering VAT Spent in the EU

The existing system of dealing with overseas VAT is based broadly on it not being incurred in the first place. This can happen either by applying the ‘reverse-charge’ principle (for purchases from EU countries), or more simply by treating the purchase as being outside the scope of UK VAT (for purchases from all other countries); in both cases, the UK purchaser should end-up not paying any VAT and therefore no need to make a recovery.

If however VAT is incurred (say on hotel accommodation when travelling to an EU country on business), the purchaser presently has no option other than to make an application on paper direct to the tax authorities of that country, which can be time-consuming, costly and difficult-to-understand. There are agents that can help in making large recoveries (for a commission) but for VAT incurred on smaller purchases by smaller businesses, this is not an option and the purchaser is left with the daunting prospect of making the recovery themselves (perhaps with the help of their accountants, which again, may be costly).

Needless to say, most of this recoverable VAT is simply never recovered due to the practical limitations of the present system.

Upcoming Changes
From 1st January 2010, there will be a new EU-wide on-line system in place, which should really improve the outlook for the smaller businesses now suffering VAT losses in this way. From that date, businesses registered in the UK will be able to submit claims for VAT incurred in other EU countries on a standardised form through a new web portal.

Briefly:

1. claims are made in English, and should be processed within 4 months (can be extended up to one year in total however)
2. payments made within 10 days once claim is processed
3. de minimis limit on claims of €50 or €400, depending on claim period

So all-in-all a very welcome and long overdue change, although clearly there are still significant practical limitations, especially in the time it takes to process claims and recover the VAT. Our advice therefore is to continue trying to avoid paying VAT on non-UK purchases in the normal way as now, but now also to look forward to being able to make applications to recover EU-incurred VAT in the future.

Please follow this link for more information, or contact us should you have questions on any of the above, and we will be happy to help in any way that we can.

Tagged as: EU VAT, Outside the Scope of UK VAT, Outside the Scope of VAT, Reverse-Charge, Reverse-Charge Principle, VAT on EU purchases