UK VAT refunds for overseas businesses
posted 28th June 2024
We're coming up to 30 June - a key date in the calendar for businesses who have incurred UK VAT and are not registered (nor required to be registered) for UK VAT. The UK's VAT refund scheme is actually quite favourable to overseas businesses, and many businesses can achieve refunds of UK VAT with a valid and accurate application. Here, we explain when a business can seek a reclaim, how we can achieve this, and the timings.
Please also see our Youtube video where Laura Chipp talks through this process in more detail.
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When is UK VAT incurred for overseas businesses?
The UK VAT system usually works quite logically for overseas businesses, in that most goods and services which originate in the UK but that are used by overseas businesses are not subject to UK VAT. Examples of this are most professional costs, most goods exported outside the UK, most training services, subscriptions, management activities and so on. However, there are some cases where UK VAT is rightly charged on services used in the UK by overseas businesses, and this includes (but is not limited to):
- Accommodation;
- Transport
- Catering
- Some supplies of land and property such as venue hire or meeting room hire
- Admission to events
- Hire of transport
The UK system will usually permit recovery of this VAT for UK businesses, assuming that the cost is used in a taxable business activity (and is not blocked due to, for example, client entertainment or the business using the services to make a TOMS supply). The same is true for overseas businesses. However, the route of VAT recovery for an overseas business will depend on whether that business is required to be registered in the UK.
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How can VAT be recovered?
If VAT has been incurred, we then need to question if and how it can be recovered. There are a couple of considerations here:
Do you have a taxable business activity?
By this, we mean firstly that you must be in business and secondly that your activities (or the activities to which the UK VAT relates) must be wholly or partly taxable. This means that they must not be something that the UK considers exempt from VAT (such as various property services, some finance services, some educational services, and others). If the business only makes exempt supplies, there is unlikely to be any recovery of UK VAT via any route.
Do you carry out any business activities with a UK place of supply?
Here, the key point is whether the business is required to register for UK VAT - i.e. whether it sells anything with a UK "place of supply". These rules are quite complex and would need to be explored with an advisor, but typically businesses with no UK establishment and which provide most types of professional services would not be required to register for UK VAT. If the business is required to register for UK VAT, it cannot use the Overseas Route, but should still address its UK VAT position.
One area where there is often a surprising ability to recover UK VAT is for businesses which supply UK tour packages on a wholesale basis to overseas businesses. In these cases, the UK VAT position is that the "place of supply" is where the wholesale customer is located meaning that, if all wholesale customers are located overseas, there is no requirement to register or account for UK VAT...but the tour business can still recover its input VAT. We would really advise overseas tour operators to consider whether this applies, as it can be a big win!
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Time limits
For UK VAT refunds for overseas businesses, the claim year runs from 1 July to 30 June, and claims for a particular year must be made by 31 December. This means that, today (28 June 2024), the year 1 July 2023 onwards is now in time, and claims relating to expenses up to 30 June 2024 must be with HMRC by 31 December 2024.
Businesses can make up to 4 claims per year and there must be at least 3 months between claims (so, you could choose to get UK VAT refunds each quarter, or every six months, or every 4 months, or every year, for example).
For periods of less than 1 year, the total amount of the claim must not be less than £130 (indeed, we would probably advise that claims of less than £2,000 are perhaps not worth the effort!)
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How to claim
Until a few years ago, UK VAT refunds for overseas businesses used to be a tedious paper process, requiring all original invoices and a courier service. Now, following a trial by HMRC's Overseas team, businesses can now apply online via the new SDES system. This means that, although every single invoice is still required, these can be sent to HMRC electronically via the portal...much easier! We have been using the system for the past couple of years and it has been working quite well. We have found the HMRC Overseas team very responsive and helpful, and keen to provide practical solutions to issues faced by the system. Although there are still a few teething issues, we have been impressed by the updates so far.
We do recommend using an agent to complete the process for a few reasons. Firstly, agents will check eligibility to make sure any claim submitted is valid. Secondly, the agent will be registered for use of the SDES system and will be familiar with the process and completing the documents accurately. Finally, the invoices are key to this process and we always ant to ensure that every invoice included is valid and complete.
The information required to complete the process is as follows:
- The VAT 65A form completed and signed, setting out all information accurately.
- Certificate of taxable status. This will be issued by your own tax authorities in a specific format. We would recommend that you seek to obtain this document as early as possible, as some tax authorities can take many weeks (or occasionally months) to process it and send over to you.
- The VAT 65A schedules. These are schedules setting out the details of each individual invoice. HMRC has a template schedule which can be completed. This is fine for small quantities of invoices. However, the document itself must be manually completed (you cannot copy and paste from Excel, or drag line items down). As such, HMRC do permit constructing your own schedules using the Developers guide. We do this for large quantities of invoices and now have these templates readily available in Excel for use with our refund clients. There are very specific specifications and rules and we designed our own tables with the help of a "computer guru" and input from HMRC's overseas team. We would recommend that anyone trying to construct their own schedules does the same, to ensure there is no risk of the document not being read by HMRC's computers.
- ALL original invoices. These need to be full valid invoices issued by the supplier, and not pro formas, copies or containing any missing information. As agents, we vet every single invoice to make sure that what we are including is valid. This can take some time, but is absolutely worth it.
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The claim process
Normally, once the claim is submitted to HMRC, there is quite a wait until we hear back, due to a large backlog. This is especially true for claims submitted close to the December deadline, with claims at this time typically being looked at in April/May of the following year. It is really important that the email address provided to HMRC by the person submitting the claim is one that is monitored regularly by someone who is expecting communication from HMRC as, once
HMRC review the claim and require further information, there is a hard deadline which, if not met, leads to automatic refusal of the claim.
Once HMRC do respond there may be some discussion on some of the invoices or other questions about the claim. We have found the team to be very engaging and practical in their approach so far and the conversations have been useful. It will then usually take another month or so for the claim to be finalised.
For subsequent claims, the process is often a bit quicker but the information is still vetted in full by HMRC.
So, this is our summary of the process of claiming UK VAT refunds as an overseas business. It can be a long wait, but for claims or more than £2,000 we would say it is absolutely worth looking into. If you are an overseas business looking to see whether you can claim a refund of UK VAT, please contact us at info@vatnav.com or 07525910372 to discuss today.