Understanding Value Added Tax (VAT) and knowing how to claim it back can save Businesses and individuals a significant amount of money. This article provides a step-by-step guide on how to claim VAT back in the UK.

Understanding VAT

VAT is a type of tax applied to the cost of goods or services. In the UK, the standard rate is currently 20%, with a reduced rate of 5% for certain goods and services. There are also items that are zero-rated or exempt from VAT.

Who Can Claim VAT Back? – The Eligibility

Not everyone can claim VAT back. To be eligible, you must be a VAT-registered business. This means you've registered with HM Revenue and Customs (HMRC) and are considered a taxable person. However, you can't reclaim VAT on everything. The general rule is that you can reclaim VAT on goods and services used wholly and exclusively for the purpose of your business.

VAT can be claimed back under the following circumstances:

Reclaiming VAT on Business Expenses

For UK businesses, Value Added Tax (VAT) can be reclaimed on a variety of business-related expenses, provided that certain conditions are met. The general rule is that businesses can claim VAT back on goods or services if they have been used exclusively for business purposes. This includes items such as office supplies, business travel, and even certain types of professional services. However, there are some exceptions and additional conditions to be aware of.

If the business in question is VAT-registered and keeps proper records of its transactions, it can reclaim VAT on its purchases. It's important to note that the VAT must have been charged at the correct rate, the supplier must be VAT-registered, and the business must possess a valid VAT invoice.

VAT Reclaims on Imported Goods

In the case of imported goods, businesses can often claim back the VAT that they've paid at the point of import. The main condition for this is that the business must be the one making the import – it cannot reclaim VAT for imports made by a third party. Additionally, the business must be able to provide a C79 certificate (the official VAT import document) as proof of the import.

Partial Exemption and Capital Goods Scheme

Under certain circumstances, businesses may only be able to claim a portion of the VAT they've paid. This is known as the Partial Exemption, and it applies when a business makes both taxable and exempt supplies. The exact amount that can be claimed back will depend on the proportion of the business's activities that are taxable.

The Capital Goods Scheme is another special case. It applies to certain high-value capital assets (those costing more than £250,000 excluding VAT), and it allows businesses to adjust the amount of VAT they reclaim over a period of several years.

VAT Reclaim for Non-UK Businesses

Non-UK businesses can also reclaim VAT incurred in the UK under certain conditions. These businesses must not be VAT registered, nor liable to be registered, in the UK. They must also not have a place of business or other residence in the UK, and not make any supplies in the UK. This process is governed by the 13th Directive Vat Refund scheme for EU businesses and the Overseas Refund Scheme for non-EU businesses.

VAT Reclaims in Special Circumstances

There are also some special circumstances under which VAT can be reclaimed. For example, if a business has been charged VAT incorrectly by a supplier, it can reclaim this amount. Similarly, businesses can make a claim for bad debt relief if they have not received payment for supplies on which they have accounted for VAT.

How to Reclaim VAT: The Process?

Registering for VAT

Before you can claim VAT back, you must first register your business for VAT. This can be done online through the HMRC website. You'll need to provide details about your business, including its address, contact information, and the nature of your business. Once registered, you'll receive a VAT registration certificate.

Step 1: Determine Your VAT Status

Before you can reclaim VAT, you need to be registered for VAT with HM Revenue & Customs (HMRC). You must also be sure that you are paying VAT on taxable supplies, or goods and services that are subject to VAT.

Step 2: Keep Accurate Records

To reclaim VAT, you must keep accurate records of all your business transactions. This includes VAT invoices from your suppliers showing the VAT you have been charged. If you lose a VAT invoice, you should ask your supplier for a duplicate.

Step 3: Fill Out Your VAT Return

Every three months, VAT-registered businesses must submit a VAT Return to HMRC. This form details your total sales and purchases for the quarter, the amount of VAT you owe, and the amount of VAT you can reclaim.

You can submit your VAT return online through the HMRC website. The form will guide you through the process, asking for your VAT-exclusive sales and purchases, the VAT you've charged, and the VAT you've paid.

Step 4: Calculate Your VAT

On your VAT return, you will need to calculate the difference between the VAT you've charged your customers and the VAT you've paid on your business purchases. If you've charged more VAT than you've paid, you will owe the difference to HMRC. If you've paid more VAT than you've charged, you can claim the difference back.

Step 5: Make Your Claim

To make a claim, you will need to fill out box 4 on your VAT return with the total amount of VAT you are reclaiming. You will also need to complete boxes 1, 6, and 7 with details about your total sales, the VAT due on these sales, and your total purchases.

Step 6: Submit Your VAT Return and Wait for Your Refund

Once you've completed your VAT return, submit it to HMRC via their online system. If you're claiming a VAT refund, HMRC will usually pay it directly into your bank account within a few weeks. If you owe VAT to HMRC, you'll need to make a payment.

Claiming VAT back in the UK involves several steps, but with careful record-keeping and attention to deadlines, it's a straightforward process. Keep in mind that the rules can be complex and may change, so it's a good idea to get professional advice if you're unsure about anything.

Making a Separate VAT Refund Claim in the UK

Claiming a VAT refund in the UK can be done through two main methods: electronic submission and postal service. Here's a detailed guide on how to proceed with each method:

Electronic Submission of Claims

The UK's HM Revenue and Customs (HMRC) has a Secure Data Exchange Service (SDES) system that allows businesses to submit VAT refund claims electronically. This system is currently being tested and is optional to use. To request access to the SDES system, you need to email [email protected].

When requesting access, you should include 'SDES' in the subject field, confirm your interest in using the Secure Data Exchange Service, and indicate whether you have a Business Tax Account already set up. HMRC will contact you within 15 calendar days to start the registration process and provide registration guidance.

After submitting a claim, you will receive a dated receipt. If you do not receive a receipt, you should email [email protected] and put 'SDES Claim' in the subject. You are required to keep all original hard copies of documents associated with your claim, as HMRC may request them. Failure to do so may result in claims being rejected in full or in part.

Postal Claims

If you do not want to use the Secure Data Exchange Service, or if you do not register for the service before 30 November, you must post your claim to HMRC on or before 31 December. Your postal claim should include the VAT65a form, Certificate of Status (CoS), invoices, and other supporting documents and information.

The postal address for sending your claim is:

HM Revenue and Customs — Compliance Centres VAT Overseas Repayment Unit S1250 Benton Park View Newcastle upon Tyne NE98 1YX United Kingdom

HMRC may ask you to provide proof of postage to confirm that you posted the claim on or before 31 December.

Remember, whether you choose to submit your claim electronically or by post, it's crucial to keep all original documents associated with your claim, as HMRC may request them at any time.

Eligibility for VAT Refund

In the UK, you can sometimes get VAT refunds on goods you buy if you meet certain criteria. These include visiting Northern Ireland and living outside Northern Ireland and the EU, working or studying in Northern Ireland but normally living outside Northern Ireland and the EU, or living in Northern Ireland but leaving Northern Ireland and the EU for at least 12 months. However, you can only get a VAT refund if you take the goods out of Northern Ireland and the EU within 3 months of buying them. Not all retailers offer VAT refunds.

Restrictions on VAT Refunds

It's important to note that you will not get a VAT refund if you travel from Northern Ireland straight to Great Britain or to Great Britain through any EU country, including the Republic of Ireland. If you travel from Northern Ireland to Great Britain through any other country, you can get a refund. However, any goods you buy in Northern Ireland will count towards your tax-free personal allowances when you enter Great Britain. If you go over your personal allowances, you’ll have to declare them along with other goods you’re carrying when you enter Great Britain and pay any import VAT due on the total goods.

Procedure to Claim VAT Refund by Consumers

To claim your VAT refund, you need to get a VAT 407(NI) form from the retailer. They will ask for proof that you’re eligible, for example, your passport and travel documents. Complete the VAT 407(NI) form, only including the goods you’re taking out of the country. Show the goods, the completed form, and your receipts to customs at the point when you leave Northern Ireland or the EU. Customs will approve your form if everything is in order. To get paid, either take your approved form to the VAT refund desk at the airport or send it to the retailer or refund provider with evidence of where you’re traveling to.

Getting Paid

You can either get paid immediately at a refund booth, for example at the airport or send the approved form to the retailer or their refund company. The retailer will tell you how you’ll get paid. Some retailers charge a fee for handling your form. This money will be deducted from your refund. If there are no customs officials available, you can leave your form in a customs post box. Customs will check it and contact your retailer to arrange a refund if everything is in order.

Non-Refundable Goods

There are certain goods for which you cannot get a VAT refund. These include most mail order goods, including internet sales, delivered outside of Northern Ireland, goods you’ve already used in Northern Ireland or the EU, such as perfume, service charges, such as hotel bills, new or used cars, goods exported for business purposes where you need to make a customs declaration, goods to be exported as freight, goods that need an export license (except antiques), unmounted gemstones, gold or silver over 125g, 2.75 troy ounces or 10 tolas, and a boat you plan to sail to a destination outside the UK or the EU.

Conditions for VAT Refund Eligibility

There are several conditions that must be met for tourists to be eligible for a VAT refund. The individual must be a visitor from a non-EU country, or an EU resident intending to leave the EU for 12 months or more. They must also show the goods along with the VAT refund documentation to UK customs at the point of departure from the UK or EU.

How to Claim a VAT Refund?

To claim a VAT refund, the visitor should ask the retailer for a VAT 407 form at the point of purchase. It's important to note that not all retailers offer this service, and some may charge a fee. The form must be filled out in the store, and the visitor must show their passport to confirm they are eligible for a VAT refund.

Once the goods are ready to be taken out of the UK, the visitor should show the goods, the completed VAT 407 form, and the original receipts to UK customs. After verifying the documents, customs will approve the VAT refund by stamping the form.

Receiving the VAT Refund

Once the stamped VAT 407 form is returned to the retailer (either by mail or through a refund company), the refund can be processed. The refund can be paid in various ways, including direct bank transfer, cheque, or credit to the card used for purchase.

Limitations and Exceptions

The Retail Export Scheme is only applicable to physical goods that will be exported, meaning services and digital goods are not eligible. Additionally, goods that are used or consumed in the UK or EU before departure, or goods that are not shown at customs, are not eligible for a refund.

Tourists visiting the UK can potentially save a significant amount of money by claiming back the VAT on their purchases. However, the process requires planning and adherence to rules. It's recommended that visitors familiarize themselves with the process and the requirements before making purchases.

What are the Different Schemes in the UK to Claim VAT Back?

There are several special schemes that can make claiming VAT back simpler. These include the Flat Rate Scheme, the Annual Accounting Scheme, and the Cash Accounting Scheme. These schemes simplify VAT accounting and can save businesses time and money.

Special Schemes for Claiming VAT Back

VAT Refunds for Tourists: The Retail Export Scheme

Tourists visiting the UK have a unique opportunity to claim back the Value Added Tax (VAT) they paid on goods purchased during their visit. This process is known as the Retail Export Scheme (RES). It's important to note that this scheme applies only to goods that are being taken out of the UK and the European Union (EU) within three months of purchase.

Standard VAT Scheme

The Standard VAT scheme is the most common way businesses can reclaim VAT in the UK. Businesses using this scheme charge VAT on their sales, and reclaim VAT on their purchases. They then pay the difference to HM Revenue and Customs (HMRC), or claim a refund if the difference is negative.

Flat Rate VAT Scheme

The Flat Rate scheme is designed to simplify VAT for small businesses. Instead of tracking VAT on each purchase and sale, businesses pay a fixed percentage of their turnover as VAT to HMRC. This percentage varies depending on the type of business. While businesses on this scheme can't usually reclaim VAT on purchases, they might be able to claim VAT on capital assets worth more than £2,000.

Annual Accounting VAT Scheme

The Annual Accounting scheme is another option for small businesses. Instead of submitting four VAT returns each year, businesses on this scheme only need to submit one. They make advance VAT payments towards their bill throughout the year, based on their last return or estimated turnover, and then submit a final return and either make a final payment or claim a refund.

Cash Accounting VAT Scheme

With the Cash Accounting scheme, businesses only pay VAT to HMRC when their customers pay them. They can also only reclaim VAT on their purchases once they have paid their suppliers. This scheme can help with cash flow, especially if a business has slow-paying customers.

Margin VAT Scheme

The Margin scheme is for businesses that sell second-hand items, works of art, antiques, and collectibles. These businesses can choose to pay VAT only on the difference between what they paid for an item and what they sold it for (the margin), rather than on the full selling price.

Retail and Catering VAT Schemes

There are several schemes designed specifically for retailers, as it can be impractical for them to issue a VAT invoice for every sale. These schemes include the Point of Sale scheme, Apportionment scheme, and Direct Calculation scheme. There are also specific schemes for caterers.

Tour Operators' Margin Scheme (TOMS)

TOMS is designed for businesses that buy and sell travel, accommodation, and certain other services as principal or undisclosed agents. These businesses pay VAT on the margin they make on the products sold.

There are a variety of schemes available to businesses in the UK for claiming VAT back. Choosing the right one depends on the type of business, its turnover, and how it operates. It's recommended to consult with a tax advisor or an accountant to determine the most beneficial scheme for a particular business.

How to Claim a VAT Refund in the UK if You're Established Outside the UK?

The process of claiming a VAT refund in the UK for businesses established outside the UK involves several steps. Here's a more detailed explanation of the process:

Overview

The notice explains how businesses established in countries outside of the UK can reclaim VAT incurred in the UK. The laws that cover this notice include the Value Added Tax Act 1994, VAT Regulations 1995, and The VAT (Miscellaneous and Transitional Provisions, Amendment and Revocation) (EU Exit) Regulations 2020. For VAT purposes, the Isle of Man is treated as part of the UK.

Refunds of UK VAT for Businesses Established Outside the UK

If you're registered for business purposes in a country outside the UK and you buy goods or services in the UK, you may have to pay UK VAT. However, you may be able to use this scheme to reclaim VAT charged on imports into the UK or purchases of goods and services used in the UK.

Eligibility

To be eligible, you must be registered for business purposes in a country outside the UK and meet two conditions: you are not registered, liable, or eligible to be registered for VAT in the UK, and you have no place of business or other residences in the UK and do not make any supplies in the UK.

Claim Limits and Time Limits

There is no maximum amount you can claim, but the UK has set minimum claim amounts that can be refunded. Your application should cover any VAT you're reclaiming over a period of at least 3 months but not more than the full prescribed year. You must make any claim no later than 6 months after the end of the 'prescribed year' in which you incurred the VAT.

How to Claim Refunds

You can now submit claims electronically using HMRC’s Secure Data Exchange Service (SDES) system. If you do not want to use the service to submit your claims, or you have not registered to use it by 30 November, all claims must be made by post.

Certificate of Status

When you make your first application you must also include a certificate of status (CoS) from the official authority in your own country showing that you’re registered for business purposes in that country.

Proof of VAT Payment

You must have correctly completed invoices, vouchers, or receipts from your suppliers showing various details including your supplier’s name, address, and VAT registration number, your name and address, details of goods or services supplied, the date of supply, the cost of the goods or services (excluding VAT), the rate of VAT, and the amount of VAT charged.

Refund Payment

The refund will be made within 6 months of receiving a satisfactory application. Payment can be made directly to your own bank through SWIFT, a UK bank, or by payable order in sterling directly to yourself or to your appointed agent.

What if Your Application is Rejected?

If your application is rejected, HMRC will tell you the reasons why. If you do not agree with the decision, you can either ask for the decision to be reviewed by an HMRC officer not previously involved in the matter or appeal to an independent tribunal.

Why is it a Good Idea to Get Professional Help to Claim A VAT Refund?

Value Added Tax (VAT) is a complex area of taxation in the United Kingdom that can be challenging for businesses and individuals to navigate independently. It is hence a good idea to seek professional help when claiming a VAT refund. Here are some compelling reasons that justify the decision to enlist professional help.

The Complexity of VAT Legislation

VAT legislation in the UK is incredibly intricate. It involves numerous rules, regulations, exceptions, and thresholds, all of which can be challenging to grasp without a solid background in taxation. Professionals specializing in VAT can demystify these complexities and ensure that your claim complies with all relevant legislation, reducing the risk of costly mistakes.

Time Efficiency

Compiling and submitting a VAT refund claim is a time-consuming process. It requires careful record-keeping, precise calculations, and a thorough understanding of the claim process. By delegating these tasks to a professional, you can save valuable time that can be better spent on other critical aspects of your business or personal life.

Potential for Greater Returns

Professional VAT advisors possess deep knowledge and understanding of the system. They are aware of all potential areas for refund claims and can maximize your return by ensuring that no legitimate claim is overlooked. The professional's fee is often compensated by the additional refunds identified and claimed successfully.

Avoiding Penalties

Errors in VAT refund claims can lead to penalties and interest charges from HM Revenue and Customs (HMRC). Professionals can help avoid such penalties by ensuring that your claim is accurate, compliant, and submitted on time. They can also deal with HMRC on your behalf if any issues arise, providing peace of mind.

Continual Regulatory Updates

VAT legislation is continually evolving. Keeping up to date with these changes can be daunting, especially when juggling other responsibilities. Professional VAT advisors constantly monitor these regulatory updates and interpret how they impact your specific circumstances.

Professional Representation

In the event of an audit or dispute with HMRC, having professional representation can be invaluable. VAT specialists can effectively communicate with tax authorities on your behalf, presenting your case in the most favorable light and reducing the likelihood of adverse outcomes.

The process of claiming a VAT refund in the UK can be fraught with complexities and potential pitfalls. Leveraging professional help can save you time, maximize your return, reduce the risk of penalties, keep you updated with legislative changes, and provide valuable representation if disputes arise. Therefore, investing in professional VAT services is a wise decision for both individuals and businesses.

Conclusion

VAT can be a significant expense for businesses, but by understanding the conditions under which it can be reclaimed, businesses can potentially save a substantial amount of money. However, the rules can be complex, so it's important to seek professional advice to ensure that all conditions are met and that claims are made correctly.

Claiming VAT back can be a straightforward process if you understand how it works and maintain good records. Although the process can seem daunting, following these steps and ensuring accurate and up-to-date records will make the process significantly easier.

Remember, the specifics of your situation can affect your ability to reclaim VAT. Always consider getting professional advice if you're unsure about anything. It's better to get it right the first time than to risk penalties from HMRC for mistakes.

As always, for the most current information and specific advice about your situation, consult the HMRC website or a tax professional.