How to reclaim VAT on business costs as a non-UK business
Ryan Bevan 28 April 2016 No comments
Broadly, businesses operating in the UK can be divided by those that have a fixed location inside the UK from which goods/services are supplied/purchased (this brings up another key issue ‘the place of supply’), and those that do not have a fixed location inside the UK called – Non-Established Taxable Persons (NETP), or non-resident businesses.
These businesses are treated differently in two key areas of VAT:
- Reclaiming VAT, and
- Registering for VAT.
VAT registration for businesses with residence in the UK is generic to all in that category. Businesses must register after reaching a particular threshold for supplies or intra-community acquisitions of £83,000 per annum in the UK by filing form VAT 1, and have 30 days to notify HMRC after the liability arose.
Businesses classed as non-residents are treated differently to residents as stated before, although the classification of non-residents is further split into two more categories, those who are in the EU and those who aren’t, with regulations altered for each. In the particular case of registration however, both EU and Non-EU are treated the same by the UK having a threshold of £0 for any relevant supplies of goods and/or services and £83,000 for intra-community acquisitions.
For only EU non-residents, Distance Selling comes into effect when making sales to UK customers from another EU country. Distance selling allows sales to be made, without the need to register for VAT with the threshold set at £70,000 (£0 for certain goods liable to excise duties, such as mineral oils, tobacco, and alcohol).
[N.B. Form VAT1A is used to register for VAT if the distance sales threshold is exceeded].
Non-EU businesses are not offered this facility and must register when making any sales. It is also worth mentioning that whilst not the case in the UK, some countries require non-EU businesses to have a fiscal representative and/or records within the country, for the purposes of correct management of VAT in accordance with the local representatives i.e. VAT/tax audits etc.
More noteworthy differences between resident and non-resident businesses in the UK are the routines by which they are able to reclaim the input VAT on their business costs and imports. Clarifying the ‘standard method’, resident businesses may reclaim input VAT on their VAT Return, up to four years after the tax has been paid and up to six months before VAT registration, simply calculating the 20% on goods/services on which VAT applies in their VAT Return Purchase Ledger.
When it comes to reclaiming VAT, non-resident businesses that are VAT registered in the UK are treated the same as resident businesses, thus allowing them to reclaim UK VAT on their VAT Return. However non-resident unregistered businesses may also reclaim VAT according to certain criteria.
Businesses based in the EU may reclaim VAT paid to HMRC, even if they’re not registered according to the 8th EU VAT Directive (provided that they are registered in another EU Member State), via an online portal in the Member State where they are registered.
This is conditional on that business not:
- being eligible for VAT registration in the UK,
- having a location in the UK from where business decisions are made on a regular basis, or
- making any taxable supplies (i.e. VATable sales) in the UK.
Reclaims of this sort also have a minimum limit of £35 (€50) that applies to claims per calendar year and £295 (€400) per quarterly period, to be claimed by the 30th September of the following calendar year. Non-EU business (reclaiming under the 13th EU VAT directive) have limits of £16 + £130 for periods of a year and 3 months respectively.
The time limit for these claims regards a ‘prescribed year’ that commences on 1st July and ends the following 30th June. The claim must be submitted by the 31st December following the end of the prescribed year (i.e. VAT due between 1st July 2011 and 30th June 2012 would have until 31st December 2012 to be claimed).
A final adjustment to account for is that non-EU businesses may receive no interest on any late VAT repayments but EU non-residents can.
Additionally it is important to note that for EU and non-EU the following is non-reclaimable:
- Supplies of goods and services that are not used for business purposes;
- Supplies of goods or services connected with an exempt business activity;
- Any supply used or to be used to make a supply in the UK (only – non-EU)
- The dispatch of goods to another Member State (only EU)
- The export of goods outside the EU (but alternative relief is available);
- Goods or services purchased for resale (e.g. as part of a package holiday) which are for the direct benefit of travellers;
- The purchase or importation of passenger motor vehicles, unless used wholly for business purposes
If your business is in a position where you are incurring VAT on your business costs and you think you may not be able to reclaim it, get in touch with an experienced adviser and we will gladly advise on how to reduce your VAT costs.