At one time or another, most businesses send staff on sales trips or to attend exhibitions in other EU member states. All of these countries have a VAT system, so you will be incurring VAT costs that you cannot claim back on your UK VAT return. The EU has therefore set up a system operated by all member states that allows businesses to recover VAT incurred in these circumstances. This system is known as the 8th Directive refund procedure.
Example: Business trip to France
Your business has attended a five day trade fair in Paris and hired a sales stand at the exhibition. You have sent over four members of staff and when you look at the bills you see you have been charged French TVA on the hire of the stand, the hotel accommodation and on meals out.
In total, the VAT comes to over £1,000, but how do you get it back if you can’t do it on your VAT return?
Eligibility to make a claim
A business registered for VAT in one EU member state can reclaim VAT incurred in another member state under the 8th Directive. However, where the business is registered or otherwise liable or eligible to register for VAT purposes in a particular member state, it should register in that country and recover VAT through its local VAT registration.
Applications to recover VAT under the 8th Directive will be rejected if the business has residence or a fixed establishment and/or taxable supplies of goods or services in the EU member state in which the VAT was incurred.
HMRC will not forward the application to the member state making the refund in the following circumstances:
- The applicant is not a taxable person for VAT purposes (i.e. not registered for VAT);
- The applicant makes only exempt supplies;
- The applicant is covered by the exemption for small enterprises; or
- The applicant is operating the flat–rate scheme for farmers.
If HMRC decides not to forward the application it must notify the applicant of this decision.The specific items of expenditure on which VAT is recoverable vary in each member state. Where goods have been acquired in another member state, VAT can be reclaimed provided no other VAT relief is available and that, as a result of the transaction, the company does not become liable to register for VAT in that other member state. Claims for VAT that have been incorrectly charged will be rejected.
With a few exceptions, if goods are purchased for resale, either within that member state or for sale to another member state, the business will almost certainly have to register for VAT in respect of the resale and will then be able to recover the VAT through the local VAT registration.
VAT recovery through the 8th Directive, therefore, will only normally apply to goods delivered and consumed for business purposes within the charging member state, for example subsistence or consumables such as fuel.
How to make a claim
The EU has an electronic VAT refund system known as 8th Directive refunds. Prior to 2010, there was a cumbersome paper based system and all forms had to be completed in the language of the member state making the refund. There is a period of nine months in which to submit claims for VAT incurred in the preceding calendar year – i.e. the end of September of the year following when the VAT was incurred. This deadline will not be extended.
To make a claim for recovering VAT incurred in another EU member state you have to register on the UK portal via the Government Gateway. When submitting claims, you will need to record some basic details (e.g. name, address, VAT number, bank account details). This information will be stored and automatically transposed onto the individual claim forms for each member state as each claim is made. A separate claim has to be made for each member state. The system uses standard fields and codes for information and where text has to be used the use of English is permitted. Most member states require invoices for over EUR 1,000 (EUR 250 for fuel) to be scanned and attached to the claim when it is submitted. Other invoices have to be retained and may be requested. If an applicant discovers that he or she has made an error on an application, a corrected application can be submitted.
Businesses that are partly exempt should only claim VAT recovery in line with their agreed partial exemption method.
Practicalities of claims
Once the tax authority in the other member state receives the claim it must be processed within four months and, if approved, repaid within ten working days. If further information is requested, the processing period can be extended up to a maximum of eight months.
If the claimant does not provide the information requested within one month, the member state making the refund must decide on the claim within two months after the one-month period expires for the claimant to respond.
If these time limits are exceeded then interest will be paid to the claimant. You can make a maximum of five claims to each member state per year - essentially one per quarter, plus a final ‘sweep-up’ claim to capture any invoices not previously claimed during that year.
However, businesses do not have to make quarterly claims; for example, it is possible to make two six-month claims or one 12 month claim. Claims may not, however, be made for a period of less than three months, unless they are for the remainder of a year.
In the first phase of an application, most member states do not require any documentation other than the application form and high value invoices. Once the application has been transferred to the state in which VAT was incurred, that state can request additional documentation, such as invoices (originals or copies), import documents or other supporting documents.
It should be noted that in a recent ECJ case it was ruled that, in some cases, a non-resident business should be able to submit duplicate tax invoices where the originals have been lost for reasons beyond its control.
In the event that a claim is refused in whole or in part, the decision can be appealed. Guidance on appeal procedures in each Member State is available from HMRC. Businesses will be informed about the progress of their refund claims at certain key stages.
There are standard de-minimis limits for claims that will apply in all member states. If the claim relates to a period of less than one year but more than three months it must be for at least EUR 400 or equivalent local currency. If the claim relates to a whole year or the remainder of a year it must be for at least EUR 50 or equivalent local currency.
If you incur VAT in another EU member state you can claim the VAT back using a new simplified electronic system. If they take more than eight months to repay you, you can claim interest.