Whilst on holiday you find just the thing for your office you’ve been looking for and decide to buy it. As it’s a purchase for your business can you reclaim the foreign VAT you pay?
Goods and services in the EU
Until 2010 where you paid VAT on goods or services purchased while visiting an EU country the only way to reclaim it was to apply to the tax authorities in that country. If you were VAT registered in the other country you could claim the VAT through your VAT returns there, but if you weren’t registered there a stand-alone claim was the only way to get the VAT back. This was a cumbersome and slow process. In 2010 HMRC and its EU counterparts created the EU VAT refund service to simplify claims.
What VAT can you reclaim?
The EU VAT refund service allows you to submit (online) claims for refunds of foreign VAT to HMRC instead of to the tax authorities in the EU country where you made the purchase. However, the rules are often misunderstood resulting in incorrect claims which HMRC will reject.
Trap. The service is not intended for purchases of goods which you bring back to the UK. These are imports and the usual VAT rules apply. These say that the seller should have zero-rated the sale and you would declare the transaction as an import on your UK VAT return. If you’ve paid foreign VAT on goods you import, you can’t reclaim VAT.
Example. While on holiday in Germany Larry bought IT equipment on which he paid German VAT of €600. He brings the equipment back to the UK for use in his business. He cannot reclaim the German VAT using the EU VAT refund service or by applying to the German tax authority.
Tip. What Larry should have done was to tell the seller he would be taking the goods permanently to the UK for use in his business. The seller can then zero-rate the sale if Larry provides him with his VAT number plus the name and address of his business. The European Commission’s website has more information on zero-rating these types of sale (see The next step ).
Back in the UK
If Larry from our example followed the correct procedure and so not paid German VAT, when he returns to the UK he would account for VAT on the goods on his UK return and on the same return reclaim any of the VAT he’s entitled to according to the UK rules (see The next step ).
Using the EU VAT refund service
Use the EU VAT refund service for goods bought for your business in another EU country which you don’t bring to the UK and for services, e.g. hotel bills, car hire. HMRC will only accept claims if they are:
- for a period of at least three months (or less if the period of claim ends on 31 December) and
- is for a period not exceeding twelve months; and
- submitted by 30 September following the calendar year in which the purchase was made.
Note. For periods of less than a year but more than three months, you can only make a claim if the VAT is €400 or more (this limit varies slightly from country to country). For shorter claim periods, the limit is €50.