Last reviewed 9 December 2020
As the transition period for leaving the EU is ending on 31 December 2020, there are many new rules that will apply from 1 January 2021.
This article deals with one specific issue that has not been given a great deal of coverage over recent months concerning how to recover VAT incurred in the EU on business expenses after 1 January 2021. As the UK will no longer be an EU member state, and after the end of the transition period, it will be necessary to use a different VAT refund mechanism.
Refunds of VAT incurred in the EU
When a business incurs VAT in the EU, the VAT incurred can be reclaimed subject to a number of conditions. Claims are to be supported by the original invoice and this needs to be provided with the claim, copies are not permitted. The business needs to provide proof of being in business issued by the UK tax authority (an application for this form can be made to HMRC). It is also necessary to complete the appropriate form for the claim. The VAT that can be claimed may differ from the VAT usually claimable in the UK. For example, some member states do not allow VAT on subsistence costs to be claimed. It should also be noted that strict time limits apply to VAT refunds. Furthermore, it is also a requirement that the business is not established in the member state in the country where a claim is being made.
The current EU VAT refund scheme is only available for expenses incurred prior to 1 January 2021. Claims need to be submitted before 11pm on 31 March 2021 through HMRC’s VAT online system. Most businesses should already be registered for VAT online, but if not, registration is possible at https://www.gov.uk/send-vat-return. To register it is necessary to provide the business’s VAT number and Government Gateway user ID and password. These would have been provided when the business registered for VAT.
For VAT on expenses incurred after 31 December 2020, it will be necessary to apply direct to the EU member state where the expense was incurred. Each EU member state has its own process and this must be complied with. The information regarding how to make the claim is at: https://tinyurl.com/EUVATrefund. The appropriate section is in the table titled “Vademecum on VAT refund for non-EU business”. This is called a 13th Directive VAT refund.
The appropriate country listing then needs to be clicked to obtain details of the member states VAT refund rules (note these rules may not have been updated to show the UK as an eligible claimant, but a UK business will be eligible). This web page also contains details about other VAT issues in the various member states.
When the member states name is clicked, the relevant web page for the member state is shown which gives the details for the method of making the claim, whether a tax representative needs to be appointed and where the necessary form can be obtained from. Most member states require the form to be completed in the local language (so a claim for German VAT needs the form to be completed in German). It should be noted that the forms for most member states re the same so a form in English (such as an Irish form) can be used as a template when completing the local language form.
Customs issues from 1 January 2021
As the transition period ends, the UK will be treated as a third country and the transfer of goods to and from the EU will be imports and exports. As many businesses will not have been importers or exporters in the past, but do transact with the EU, HMRC has provided information detailing how imports and exports are to be dealt with. Links are provided here to the various relevant web pages to assist businesses with importing and exporting.
How to import and export goods to and from the EU from 1 January 2021 — https://tinyurl.com/impexp2021.
Make an import declaration in your records without authorisation from 1 January 2021 — https://tinyurl.com/impdecnoauth.
What goods ware controlled goods on import — https://tinyurl.com/cntgoods.
How to import multiple low value items on a single declaration — https://tinyurl.com/lowvlue.
The Tariff for Customs Declarations (showing duty rates, etc) — https://tinyurl.com/CusTariff.
UK tariffs from 1 January 2021 — https://www.gov.uk/guidance/uk-tariffs-from-1-january-2021.
An EORI number is necessary to move goods in or out of the EU from 1 January 2021. Applications can be made at https://www.gov.uk/eori.
There are many reliefs from duty on import, some are total reliefs, some just defer the duty payable. The main reliefs available are shown at the following web pages.
How to defer duty payments on imports — https://tinyurl.com/dfrduty.
Apply for a guarantee to cover customs debts on import — https://tinyurl.com/cstdebts.
List of Agents and Fast Parcel operators that can help with customs declarations — https://tinyurl.com/agntFP.
Duty relief on imports for process and repair (Inward Processing Relief (IPR)) — https://tinyurl.com/iprCR.