Tuesday 22 September 2009

Claiming Back Foreign VAT

Do you have EU suppliers outside of the UK? Are they supplying you with goods or services on which they charge VAT?

If the answer is yes, and the scale of the supply is significant, then you should probably get advice from your tax advisor or accountant. You should be able to reclaim all that VAT, so put that in perspective if you are concerned about the amount you will pay your tax advisor to ask the question.

In fact, if you are selling or buying anything overseas (or to/by an overseas company), always consult your accountant and tax expert.

I'm tempted to leave it at that! But I want to be more helpful. The thing is I'm not a tax specialist. I've just had enough experience to know where some of the big opportunities (and danger areas) are when thinking about tax. So I will share with you some of my experiences on the condition that if any of the issues affect your business you must go straight to your accountant or tax advisor and ask for proper advice.

First, don't, whatever you do, try to reclaim foreign VAT on a UK VAT return! If you have been including Dutch, German, French, Irish or Italian (or anybody else's) VAT in the purchases section of your UK VAT return then you have made a boo-boo! UK VAT returns are for UK VAT! You must quickly get advice from your accountant, who will help you to make a voluntary disclosure to HMRC, which will help to limit the interest and penalties you may have to pay.

Second - OK, assuming that you have not reclaimed this foreign VAT on your UK VAT return, I should mention one other possibility. You may be VAT registered in other countries. It is perfectly possible to register for VAT in Germany, even if you don't have a company based in Germany, and even if you don't sell anything in Germany.

If you are registered for VAT in other countries, then I am going to assume that you have already sought advice on it. All I will say is that it is worth paying a few hundred pounds every year to have your tax advisor come in and look over your non-UK VAT returns, or even have a tax advisor engaged in the other country, just to give you confidence that you are doing it right.

You will find that you will get tax correspondence in a foreign language, and so it makes sense to have a relationship with somebody who is an expert in tax as well as a native speaker of the language.

But DON'T go and register for VAT in a foreign country just because I mentioned it was a possibility! Get advice from your tax specialist! And if you are squirming because you don't like paying for professional advisors, then all I would say is - factor it into the cost of moving into that market. It's not something you should cut corners on.

I once worked with a business that was registered for VAT in Sweden, and even had an advisor in Sweden. But when correspondence came through from the Swedish tax authorities, they didn't refer to their advisor. The result was they paid late filing fees and interest of hundreds of pounds, because they had not realised the letters were telling them of a problem with a deregistration document.

Are you getting the message yet?!

Thirdly, if you are not VAT registered in foreign countries, then how can you reclaim the VAT that has been added to invoices that you have paid?

In the EU there is a process you can follow under the EU 8th Directive. It is bureaucratic, tedious, laborious and very strict, but it is worth the effort if you have incurred foreign VAT of more than £1,000-ish. There are forms to complete, which are different in each tax jurisdiction. Some have to be submitted in the local language, whereas some tax authorities accept submissions in English. And you have to enclose with your claim the original invoices on which you have incurred VAT.

There are other processes in other countries too for similar sales taxes, like VAT in Singapore, or GST in Australia or New Zealand.

Thankfully there are specialists out there who can help you. Some of them, such as Meridian VAT, will simply charge a percentage of what they manage to reclaim for you. Others, and some of the accounting firms, may charge a fixed fee or a percentage. If I were to state a preference I would suggest speaking to your accountant about it first. They can sometimes be very helpful with this, and pretty reasonable in terms of fees.

One thing I will note on this, is that when I did this for a £250m turnover group that was operating in 30 countries, we found errors in invoices from our suppliers. They had charged VAT on some cross-border invoices that were supposed to be free from VAT. The 8th Directive claim would have been rejected, because the invoices were incorrect. But in actual fact it was easier simply to go back to the supplier and ask them to give us credit notes and reissue the invoices. But it needed a VAT expert sifting through the invoices to spot that this had happened.

In conclusion, I have only scratched the surface, but hopefully enough for you to see that trading overseas can be a minefield. And I have only talked about the VAT pitfalls.

Starting to trade with overseas partners or employ people overseas should not be done without first seeking professional advice from your accountant and tax advisor. It's simply too risky.

Tuesday 15 September 2009

Smallbizpod

http://www.smallbizpod.co.uk/

A site packed with advice and tips and regular podcasts for start-ups, small businesses and entrepreneurs. Worth a look.