Overseas VAT issues

Summer 2010

1 January 2010 was a key date for businesses with EU activities. An EC Sales List (ESL) must now be completed if you are VAT registered in the UK and sell services to an EU business customer without charging VAT. Another important change is that any claim for a refund of VAT paid in another EU country is now dealt with by a modern electronic claims system.

The ESL has been in place for many years for the sale of goods to EU business customers. However, it has only become relevant to businesses providing services since 1 January 2010. The return needs to be submitted to HM Revenue & Customs (HMRC) on a quarterly basis, with due dates as follows:

If you submit a paper return it is due within 14 days, which is 14 April for the March 2010 return.
If you submit the return online you get an extra seven days to file it, so it is due within 21 days of the end of the quarter, which is 21 April 2010 in the case of the March 2010 return.

The details that have to be given on the return are very simple: they are the value of sales to each customer for the period covered by the return, their VAT registration number, and their country code. A code 3 entry confirms that a sale relates to services rather than goods. The information provided on the return can then be used by the relevant tax authorities to ensure your customers have correctly dealt with the VAT when completing their own returns.

A UK VAT registered business is entitled to reclaim much of the VAT it pays in other EU countries. So, for example if you pay VAT on exhibition space you hire in France, you can normally reclaim this VAT from the French tax authorities.

Until 31 December 2009, the claims process for recovering overseas VAT was based on making a paper claim to the EU country where the VAT was paid. From 1 January 2010 this has been replaced by an electronic system:

You submit an electronic claim form in the country where you are VAT registered rather than where the VAT was paid, so for a UK business the form is submitted to HMRC.
HMRC will then forward the claim (also by electronic means) to the country where the VAT was paid. The tax authority in that country then has four months to process it and a further ten days to make a repayment.
The electronic return is mainly based on numbers rather than text, so the old problem of worrying about language issues is no longer a major concern. English is accepted as a common language.

Before submitting a claim, you must check that the country in question does not have any block on reclaiming VAT for certain categories of expenditure. For example, many countries do not allow claims to be made for travel or hotel costs.

In most cases, a claim can be made without submitting purchase invoices, although these may need to be scanned if the claim is for a large amount.