Part of the fallout from the recent EU financial crisis is an increasing focus on VAT. Cash-strapped countries are more and more turning to VAT as a simple way to boost tax revenues. But, what is VAT and how does it work? How does VAT impact your business? And is there a way to reclaim the VAT that you paid? Let’s find out.
FAQ #1: What is VAT?
Value Added Tax (VAT) is an indirect tax levied on the consumption of goods and services in many countries around the world. VAT is levied at each stage of the business cycle and is collected by businesses on behalf of the VAT authorities. Ultimately, VAT is paid by the end consumer. As it applies to many business transactions, VAT can add from 5 to 27% to your company’s foreign business expenses. However, VAT can be at no cost to business as long as the organization goes through the effort to recover its foreign VAT. Most business entities around the world will qualify for a refund. Note that the VAT refund rules vary significantly from country to country and are very complex.
FAQ #2: Can VAT be reclaimed on small purchases?
As long as the company is VAT-registered and has issued a valid tax receipt, there is no minimum purchase requirement. The misconception that only purchases over £25 require a receipt dates back to the days of coin-operated machines (telephones, parking meters). As receipts could not be issued in these cases, lenient legislation existed for small purchases. However, today, the safest practice is to reclaim VAT on your tax return with the business, travel, and subsistence expenses, along with a valid receipt, no matter what the purchase amount.
FAQ #3: What impact does VAT have on my business?
Businesses must bear the burden of VAT administration. The organization is required to update their systems, processes and procedures to ensure that they are always in compliance with any new tax legislation. This includes charging VAT at the correct rate, calculating VAT deductibles, calculating the overall net amount of VAT to pay/ refund, submitting the correctly-filed VAT returns, paying the net amount of VAT due within the required deadlines, and maintaining the appropriate VAT documentation and records. These are all costly processes in terms of human resources.
FAQ #4: I am starting/expanding a business. How do I prepare for VAT?
The level of VAT preparatory work is largely dependent on the size and complexity of your business. The steps suggested for all new/expanding organizations include: understand how VAT fits into your operational model and assess the capability of existing systems to accommodate VAT requirements, determine a VAT implementation strategy, identify and implement any necessary contractual arrangements, and identify all business transactions where VAT applies.
Plan carefully. Errors, such as late submission of VAT, incorrect VAT charges, or invalid claim documentation, may be subject to penalty. Make every effort to ensure that you have the appropriate systems and procedures in place to limit your exposure.
FAQ #5: How can VATBox help?
VAT refund rules are extremely complex and vary across countries. Using its expert knowledge, proven processes and clear procedures, VATBox has successfully automated the VAT recovery process through it’s intelligent knowledge-based automation. VATBox provides full insight and facilitates complete control of a company’s VAT spend, making the recovery process more productive and yielding higher returns. Since 2012, VATBox has been revolutionizing the automated VAT recovery marketplace with its cloud-based solution, leading the worldwide foreign VAT recovery arena. With offices in London, Paris, Frankfurt, New York and Tel Aviv, VATBox operates globally to give businesses full control over their tax spend and recovery.