Have you ever wished there was a way to get some of your money back from the taxes you paid or VAT returns?
Well, there is! VAT refunds can help you save money and boost your business’s bottom line. Keep reading to find out how to avail yourself of this opportunity.
VAT Returns: Taking Advantage of VAT Refunds
Every penny counts. As a business owner, you are most likely always looking for ways to cut costs to boost your income. And the good news is that we have one method to share that you can do: claim VAT refunds.
You may be eligible for a VAT refund on purchases you’ve made for your business. However, mastering the rules of VAT refunds can be a headache and quite confusing.
In this blog, we’ve compiled a guide to help you get the most out of your VAT refunds.
What is a VAT Refund?
VAT refund, or Value Added Tax refund, is a process by which businesses can reclaim the VAT they have paid on eligible expenses related to their business operations.
As a business owner, a VAT refund allows you to recover the VAT you have spent on business purchases.
When to claim a VAT refund?
As an EU business, you may be eligible to claim a VAT refund in certain situations. The most common scenarios in which you can claim a VAT refund include the following:
Exporting Goods or Services
You may claim a VAT refund on your purchases if you sell goods or services to customers outside the EU. This typically applies to businesses that export goods or services to non-EU countries.
Making Zero-Rated Supplies
Some goods and services are considered zero-rated, and if you make zero-rated supplies, you may be eligible to claim a VAT refund for purchases you made for your business.
Receiving Services from Outside the EU
You may be eligible to claim a VAT refund if you receive services from a supplier outside of the EU. This typically applies to services such as consulting, advertising, or legal services.
Participating in Trade Shows or Exhibitions
If you participate in a trade show or exhibition outside of your home country within the EU, you may be eligible to claim a VAT refund on the expenses incurred for participating in the event.
When is a VAT refund not allowed?
There are certain situations where VAT refunds may not be allowed. Some common scenarios include:
VAT refunds are generally not allowed on personal expenses, such as private purchases and non-business-related expenses.
If you have expenses that are used for both business and personal purposes, VAT is not allowed for the personal element only and allowed for the business element, but there should be a valid apportioning between the two.
VAT refunds are not allowed on expenses related to exempt supplies, which are not subject to VAT. This includes goods or services exempt from VAT by law, such as specific financial, healthcare, and educational services.
Incorrect or incomplete documentation
If you do not maintain proper records or do not submit complete and accurate VAT returns, your VAT refund claims may be denied.
How to claim a VAT refund?
For UK businesses since the UK has left the EU, there are two main methods to claim VAT refunds for transactions after January 1, 2021:
EU VAT Refund System
This involves submitting a refund application electronically using the EU VAT Refund system through the tax authority in the UK, where the business is registered for VAT. The specific requirements and deadlines vary by country.
13th Directive Process
This involves submitting a paper-based refund application directly to the tax authority in the EU member state where the VAT was paid.
The application must include the relevant invoices and supporting documents and comply with the country’s specific regulations.
VAT refund for non-EU businesses
If you have a non-EU business but have incurred VAT on eligible business expenses, keep in mind some important considerations and steps to follow to claim VAT refunds successfully:
To be eligible for a VAT refund, your business must be based outside the European Union (EU) or the VAT territory of the UK, which includes the Isle of Man and the Channel Islands.
Non-VAT registered status in the UK
The reason behind this is that if you are registered for VAT in the UK, you have already recovered input VAT on business expenses through the standard UK VAT returns.
VAT reclaim threshold
The total amount of VAT refund claimed in a refund period must exceed the minimum VAT reclaim threshold, currently set at £130 for each refund period.
This threshold applies to each calendar year or each 12-month period ending on the last day of February, May, August, or November.
Timely filing of refund claims
You must submit the VAT refund claim within the prescribed time limits, generally within six months from the end of the refund period in which the VAT was incurred.
Frequently Asked Questions
How long does it take to receive a VAT refund?
The timeframe for receiving a VAT refund can vary depending on the country and the specific circumstances of your VAT refund claim.
VAT refunds are processed relatively quickly in some countries, including the UK, usually within 30 days. In others, the process, including the actual transfer of the refund to the bank account, may take several months or even longer.
Are there any penalties for incorrect or fraudulent VAT refund claims?
Yes, there can be penalties for incorrect or fraudulent VAT refund claims. Tax authorities take these seriously and may impose penalties, fines, or legal consequences.
So, as a responsible business owner, ensure that your VAT refund claims are accurate, supported by proper documentation, and compliant with the relevant VAT regulations to avoid penalties or legal repercussions.
What documentation do I need to claim a VAT refund?
Proper record-keeping is essential for claiming VAT refunds. You must maintain accurate records of your expenses, including invoices, receipts, and other relevant documents.
Additionally, you may need to submit complete and accurate VAT returns to the tax authorities and any other required documentation or forms, depending on the specific rules and regulations in your country of operation.
You can optimise your VAT refund process by knowing when and how to claim VAT refunds and being aware of the eligibility criteria and documentation requirements.
Seeking professional guidance can also be beneficial to avoid any potential pitfalls. Consult us at Sterlinx Global for further tax and accounting advice.