Brexit and VAT Refunds: Changes for U.K. and EU Businesses

There are many changes effective from January 1, 2021 as the U.K. is no longer an EU member state.

EU businesses cannot use the EU online value-added tax (VAT) refund system and submit so-called 8th Directive claims in their own member state to claim any U.K. VAT refunds when costs are incurred after the end of 2020.

As the U.K. is no longer a member state, U.K. businesses cannot use the EU online VAT refund system and submit online claims via the U.K. tax authority, HM Revenue & Customs (HMRC) website to claim back the VAT paid on costs incurred in EU member states after the end of 2020.

Claiming U.K. VAT

EU companies which are entitled to claim U.K. VAT refunds should remain able to recover U.K. VAT which is recoverable based on U.K. rules. However, since the EU rules no longer apply to the U.K. from 2021, the process for reclaiming VAT has also changed from January 1, 2021. The website of the EU tax authorities can be used until March 31, 2021 at the latest to reclaim the U.K. VAT on invoices dated until the end of 2020. After this, the EU business will have to submit the application directly to HMRC.

The deadlines to submit, and the method of doing so, will change. The claim period is also different; as opposed to calendar years, claims should be submitted on the basis of a “prescribed” year running from July 1 to June 30. The deadline for U.K. VAT costs incurred between July 1 to June 30 is December 31 of the following “prescribed” year. Claims for U.K. VAT incurred between January 1, 2021 and June 30, 2021 should be submitted no later than December 31, 2021.

Claiming EU VAT

A U.K. business which has incurred VAT in any of the EU member states before December 31, 2020 can still recover this VAT by submitting an online EU refund claim in the U.K. until March 31, 2021, after which time the ability to claim through the HMRC website/EU portal will cease.

Any EU VAT incurred after January 1, 2021 will need to be recovered using the so-called 13th Directive procedure under which the claim is submitted directly to the tax authorities of the EU member state where the VAT costs are incurred. These claims can be submitted from April 1, 2021 and are available to U.K. businesses subject to the specific rules applicable in particular EU member states. If a business misses the deadline, the tax authorities of the particular member state may not accept the claim. However, in some countries the claims can be made up to five years after the VAT costs have incurred (e.g., in the Netherlands).

This article provides an overview of how EU businesses could claim U.K. VAT refunds, and how U.K. businesses could claim VAT refunds in the EU.

EU Businesses Claiming U.K. VAT Refunds

An EU business which is not registered for VAT in the U.K. but incurred U.K. VAT costs before December 31, 2020 can still recover the U.K. VAT by submitting an EU refund claim in its own EU member state. Online EU refund claims can only be made until March 31, 2021, after which time the ability to claim online through the business’s own EU member state tax authority’s website will cease.

EU companies will continue to be able to claim U.K. VAT after March 31, 2021 as the U.K. will continue to offer them the VAT claim procedure currently applicable to non-EU businesses. Any U.K. VAT incurred after January 1, 2021 will need to be recovered using this procedure under which the claim is submitted directly to the U.K. tax authorities.

The relevant claim period will change, and the deadline, limits for claims, as well as required documents, will also change.

The claims should be submitted on the basis of a year running from July 1 to June 30, no longer on the basis of a calendar year.

Claims Made until March 31, 2021

EU entities which incurred U.K. VAT and are not required to be registered for VAT purposes nor established in the U.K. should recover 2020 input VAT via the normal online EU refund claim. This should be submitted to the tax authorities of the EU member state where they are established. However, as a result of Brexit, the deadline to reclaim U.K. VAT is different to the rest of the EU member states. The current online process for EU businesses will continue until March 31, 2021, i.e. data only and copies where required. See more details here. Corrections or additions relating to the refund applications (which have been submitted on time) may still be reported up to December 31, 2021.

Claims Made after March 31, 2021

Transitional rules will apply for VAT refunds on expenditure incurred in the U.K. on or before December 31, 2020. Claims for invoices dated January 1, 2020 to December 31, 2020 can be submitted online until March 31, 2021.

Any U.K. VAT incurred after January 1, 2021 will need to be recovered using the procedure under which the claim is submitted directly to HMRC. This is similar to claims currently made by non-EU businesses. These claims can start to be submitted from April 1, 2021.

There are strict time limits for such claims, and they need to be submitted within six months after the end of the “prescribed year” when the VAT was charged. The prescribed year runs from July 1 to June 30 and a claim must be made by December 31 following the prescribed year. If the deadline is missed, the U.K. tax authorities will not accept the claim. Generally, the U.K. tax authorities do not require businesses to appoint tax agents and do not require reciprocal treatment in the claimant’s country before repaying a claim.

New Rules Apply for U.K. VAT Costs Incurred After 2020

For VAT refunds on expenditure incurred in the U.K. after December 31, 2020, the new rules will apply. A separation has to be made after 2020 between:

• Great Britain (GB) and Northern Ireland (NI); and
• supply of goods and services.

Northern Ireland

According to the Northern Ireland Protocol to the EU–U.K. Withdrawal Agreement, NI maintains alignment with the EU VAT rules for goods. From January 1, 2021, the EU legislation for VAT refunds continues to apply in NI in respect of goods only (import of goods and purchase of goods). The current rules continue to apply for refunds of VAT related to invoices for only goods.

This means that it is possible to use existing online EU refund claims (8th Directive claims) in your own member state when it is VAT on purchases of goods. For supply of services or invoices containing both goods and services, the same rules will apply as for GB.

See more details here.

Great Britain

From 2021, EU businesses will no longer be able to submit online U.K. VAT refund requests via the EU portal. The U.K. has announced its intention to introduce its own online system. It will thus be possible to submit future refund requests online, similar to the current EU system. However, the claims are not possible via own EU member state after March 31, 2021 but have to be made directly to HMRC instead. The system is currently being tested and is not yet available.

Changes from January 1, 2021 on Refunds of U.K. VAT Costs Incurred after January 1, 2021

• U.K. HMRC will be offering EU businesses VAT reclaim possibilities, this will be based on the existing 13th Directive procedure.
• Claim limits (minimum refund amounts) will change.
• Documents that need to be submitted also change, e.g., EU companies will need physical original invoices, tax certificates and claim forms.
• Time limits will also change.
• Currently a claim period is a calendar year to be claimed within six months (nine months for EU businesses).
• The relevant claim period will change, claims should be submitted on the basis of a year running from July 1 to June 30 not on the basis of a calendar year as currently. For example, U.K. VAT costs incurred between July 1, 2020 and June 30, 2021 should be claimed by December 31, 2021.

U.K. Businesses Claiming VAT Refunds in EU

Any EU VAT incurred after January 1, 2021 will need to be recovered using the 13th Directive procedure under which the claim is submitted directly to the tax authorities of the EU member state where the VAT costs are incurred. These claims can be submitted from April 1, 2021 and are available to U.K. businesses subject to the specific rules applicable in the particular EU member state. If the deadline is missed, the tax authorities of the EU member state may not accept the claim.

In the Netherlands, VAT refund claims could be made over the last five years. No reciprocity is required. Other EU member states may require businesses have a reciprocal treatment in the claimant’s country and/or require the appointment of tax agents as a condition to refund a VAT claim.

Claims Made Until March 31, 2021

A U.K. business which has incurred VAT in the Netherlands or any other EU member state before December 31, 2020 can still recover this VAT by submitting an online EU refund claim in the U.K. until March 31, 2021, after which time the ability to claim through the EU online VAT refund portal on the HMRC website will cease.

Dutch VAT may be reclaimed within five calendar years from the end of the calendar year in which the VAT was incurred; however, in order to have the right to appeal the decision of the tax authorities, the claim must be submitted within the time limits. The time limit is six months after the end of the calendar year in which the VAT was incurred by non-EU businesses.

Claims Made After March 31, 2021

Any EU VAT incurred after January 1, 2021 will need to be recovered using the 13th Directive procedure for non-EU businesses under which the claim is submitted directly to the tax authorities of the EU member state where the VAT costs are incurred. These claims can be submitted from April 1, 2021.

Dutch VAT can be reclaimed up to five years after the year in which the VAT was incurred. In 2021, it is still possible to reclaim VAT for the years 2016 until 2020. However, in order to have the right to appeal the decision of the tax authorities, the claim must be submitted within six months after the end of the calendar year (i.e. before July 1) in which the VAT was incurred. Therefore, it is advisable to submit the 13th Directive VAT refund request before July 1 of the year following the year for which the VAT refund is being claimed.

The following documents must be filed with the 13th Directive refund claim:

• declaration of entrepreneurship, preferably from the tax administration in the country of establishment; and
• copies of invoices or import documents.

Special Status of Northern Ireland

Taxable persons established in NI that incurred VAT on goods in the Netherlands and other EU member states can continue filing refund requests via the online EU VAT refund system. NI taxable persons incurring VAT expenses on services in the EU, or if invoices contain both goods and services, cannot reclaim this VAT under the EU VAT refund system. They should apply for a VAT refund under the specific VAT refund procedures for non-EU businesses as explained above.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

This article was updated by the author on March 18, 2021.

Aiki Kuldkepp is Senior Manager, Tax, with Grant Thornton Netherlands.

The author may be contacted at: aiki.kuldkepp@nl.gt.com