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The Essentials of UK VAT

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Maximising your Foreign VAT Reclaims

I read recently that many companies leave significant amounts of foreign VAT unclaimed some estimates put the total amount in the billions. I therefore asked Michelle Lang, a VAT consultant at Taxback in Ireland, about this and she explained that this is why Taxback have a thriving global business helping companies get refunds of VAT on business expenditure incurred in countries where they are not liable to register for VAT.

Free Fact Sheet - maximixing your VAT reclaimsMichelle then arranged for one of her colleagues, Lisa Dowling, to be a guest speaker at a presentation of The Essential Guide to UK VAT and International Trade, which provided a fascinating insight into the issues associated with foreign VAT reclaims.  Lisa highlighted that many companies hit obstacles when submitting their own claims which are largely to do with a lack of understanding of the different rules that exist in different countries regarding the categories of input tax that can be recovered.  She explained that what is acceptable in one country might not be acceptable in another.  An example was with regard to claiming VAT back on hotel bills.  In some countries you will get away with a person submitting a hotel bill that has been made out to him or her as the employee rather than the employer. In other jurisdictions this is not permissible, the VAT invoice must be made out to the taxable person making the VAT reclaim.

You also need to be careful when employees of UK subsidiaries are travelling to parent companies that are established outside the UK.  The parent company should not pay invoices on behalf of the person incurring the expense with the intention of reclaiming the VAT back on their local VAT return.  The employee should reclaim the expense from his or her employer, in this instance the UK subsidiary, and the employer should look for a VAT refund from the tax authority in the country in which the parent company is established.

If an expense is incurred in another EU country in which the employer is not liable to register for VAT then there is a service offered by HMRC, as there is in all of the EU countries, for you to make a claim under the EU VAT Refund Scheme.  This is intended to be a simple procedure but in practice it can be very time consuming particularly if you do not observe the specific rules in the respective countries. Lisa explained that frequently a number of things can occur that will slow down the process.  You might find that the VAT invoice that you have has an error on it which means that the respective VAT authority rejects the claim and to follow it through you need to go back to the supplier and ask for it to be corrected.

Another typical circumstance that Lisa highlighted was when a supplier raises an invoice charging their country’s VAT when it should have excluded VAT because it was an EU Sale or a reverse charge invoice.  In this type of situation you cannot reclaim the VAT under the EU VAT Refund Scheme.  Again you need to go back to the supplier and ask them to correct the invoice and, if you have also paid the invoice including the VAT, then request a refund of the VAT from the supplier.

It does not surprise me that many companies lack the time to follow through, leaving VAT unclaimed.  A major barrier for some is the ability to talk the local language of the supplier.  Even if the supplier is able to communicate with you in English because you do not talk their language, don’t be surprised when the tax authority in the supplier’s country will not communicate with you in English.

Michelle and Lisa explained to me that this is where Taxback scores over its competitors because they make sure that key people in their processing centre are able to speak at least two languages.  When they take on a new client who might be a Spanish company wanting to claim VAT back made on a supply in France, they will allocate a person who has a full command of the two languages, Spanish and French, and also understands fully the specific rules and regulations in France regarding VAT reclaims.

We have worked with Taxback to produce a fact sheet about making foreign VAT reclaims.  Visit this page to download a copy of the fact sheet.

I wish you luck in making your VAT reclaims in 2013 and send you my seasonal greetings.

Stephen Smith
Managing Director
UK Training (Worldwide) Limited


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