When the UK leaves the EU VAT regime and Customs Union on 31 December 2020, many tax rules between the EU and UK will change or no longer apply. Instead of the trading activity of goods between companies established in different EU Member States being considered intra-community transactions, the trade between EU countries and the UK will now involve import/export implications. For example, if a UK company exports machinery from the UK to Poland, his will trigger Polish import VAT becoming due. If the UK company is liable to pay this VAT to its customs agent, they can easily overlook the ability to recover this Polish import VAT. More of these scenarios will start emerging for warranty supplies, equipment for testing, tooling, ad-hoc speed deliveries, intercompany sales and compensations and for group data centres, to name just a few.
What triggers Foreign VAT in AP?
When there is no import deferment scheme – which would exempt companies from paying the actual import VAT upon importation – VAT will become payable on goods imported into the UK from the EU and vice versa. However, Foreign VAT in AP can also surface in the area of fuel (cards) for company cars and trucks, events, services related to foreign warehouses or server farms, and centrally billed travel agency charges, for example. These Brexit-related VAT changes can also impact companies established in a non-EU country (for example US companies) that have central EU points of importation in the UK or in one of the EU Member States or distribute goods between the EU mainland and the UK.
Complexities involved in the recovery of Foreign VAT in AP
In principle, businesses are eligible to recover some or all of the Foreign VAT incurred, representing a significant opportunity to reduce their tax burden. The actual Foreign VAT recovery process comes with different formal and procedural requirements, and purchases must be documented by VAT compliant invoices, and imports by import documentation. On the other hand, certain transactions may trigger questions from the tax authorities regarding the set-up of the business and supply chain, and therefore requires a specialist review before submission.
Identifying the eligible Foreign VAT AP transactions is not simple. The sheer complexity of uncovering already-booked invoices from supplies and activities that contain recoverable Foreign VAT is challenging to even the most robust AP departments. Even when identified, updated and expert knowledge of the complex rules, regulations and best practices in every country is required to establish whether the VAT was charged correctly and whether it is recoverable.Additional information may have to be collected before submitting the application to allow for a smooth refund process and the optimisation of your cash-flow.
Post-Brexit, there will be many exceptions to the already-complex regulations. Few AP team members are qualified to make intricate indirect taxation decisions, and it is unusual for VAT compliance departments to be experts in the end-to-end Foreign VAT recovery process in so many countries.This leaves AP exposed to Foreign VAT recovery losses, as well as potential non-compliance penalties.
What can companies do to optimise the impact of Foreign VAT in AP before and after Brexit?
- Review your supply chain to detect possible areas of Foreign VAT to be charged post-Brexit
- Be ready and request the necessary EORI numbers before 1 January 2021*
- Make use of the available import deferment schemes available in some countries in order to avoid import VAT payment at the point of importation
- For EU companies to be on the safe side, identify any eligible 2020 Foreign VAT in AP transactions before March 2021 (deadline until the electronic EU VAT refund portal is open for 2020 charged VAT)
- Adopt an end-to-end digital solution to process and automate your Foreign VAT transactional data, as avoiding it will end up in P&L.
The benefits of VATBox for Foreign VAT in AP
This realisation, coupled with the upcoming Brexit, has spurred tax and financial stakeholders to begin taking a closer look at the efficiency and reach of existing foreign VAT in AP recovery processes and how automation can provide greater value.
VATBox’s automated, compliant VAT recovery technology integrates seamlessly with ERP environments, extracting and auditing data to verify the accuracy of VAT invoice data and improving results for Foreign AP VAT reclaims. Analysing each Foreign AP transaction using a unique knowledge-based automated engine to determine if VAT was charged and automatically request invoice corrections, resulting in faster Foreign VAT recovery and dramatically enhanced compliance. Wiring your hard earn VAT directly into your company bank account so that the funds can be reallocated back to departmental budget holders.
Last, we advise you to integrate VATBox’s digital and physical archiving solution with the VATBox portal for a complete audit trail is highly important since the D13 requires a hard copy for future audits
For any questions, contact your dedicated Customer Success Manager, or contact VATBox’s Support team directly via the VATBox portal. If you’re not a member of the VATBox community,
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Tax Manager, VATBox
Nikolett is leading the VATBox team that is responsible for keeping the Eligibility & Routing rules of the VATBox solution up to date with the countries’ VAT best practices furthermore with changes coming from court cases and legislative/administrative procedural changes. She is providing tax knowledge support for the Marketing, Product, R&D and Sales team. Before joining VATBox, Nikolett was a senior tax advisor in Mazars’ indirect tax team. Nikolett has broad experience in the tax assessment of various types of transactions, supporting tax audits and implementing VAT optimization solutions. She successfully represented businesses before national tax administrations and administrative courts, as well as conducted numerous tax training activities. Nikolett is a certified tax advisor.
*The required UK EORI numbers (starting with GB) – stands for “Economic Operators Registration and Identification number” and used for all customs procedure – (starting with GB) that allows companies to communicate the UK custom will no longer be valid work for companies in the EU Member States in the EU. From 1 January 2021, there will be two types of EORI numbers, 1) UK EORI numbers and 2) EU EORI numbers. In order to import or export goods into or out of the EU, companies will have to request a new UK EORI number within one of the EU Member States.
A UK EORI number will be necessary for the same purpose, only for trading into and out of the UK.