Braxton Consulting

VAT Frequently Asked Questions

I have received a demand notice for payment of tax. Why?
VAT Authorities have not received payment of the tax/duty liability which is described in the demand notice. You should therefore pay the outstanding debt without delay so as to avoid further recovery action. VAT Authorities have a responsibility to all taxpayers to ensure that all taxes and duties reach the Treasury. They also have a responsibility to ensure that businesses which fail to pay on time do not have an unfair advantage over those that do. This means taking prompt action to recover debts.

I am not able to pay the debt immediately because of a temporary “Cash Flow” problem. What should I do?
Make urgent contact with your bank or your financial advisor to explore means of overcoming these temporary financial difficulties.

I have consulted the bank/financial advisor but they are unable to help. What else can I do?
Without further delay contact the VAT Authorities of your country. They may be able to help you by agreeing a brief period in which to pay the debt. They will try to be as helpful as possible and will consider carefully all practical options for settlement. However, if these do not produce a solution or they do not receive a response to their request for payment, they may, like other creditors, take action to recover the money they are owed.

What is the difference between a taxable supply and an exempt supply?
Input VAT may be recovered on a taxable supply, while no input VAT can be recovered on an exempt supply.

What is the importance of the deregistration limit?
It depends on the country concerned. Some firms with a turnover just above the registration threshold face getting caught in the ‘VAT trap’ – a particular risk for companies whose customers are not VAT-registered. Once a firm reaches the threshold, it is, in most cases, required to register for VAT and has to raise its prices accordingly. As a result, customers start opting for unregistered rivals, which are VAT rate cheaper and turnover drops below the threshold. So the business de-registers and lowers its prices. But, of course, cheaper prices mean more sales, and the cycle begins again.

Who ultimately pays VAT?
The final customer.

What is input VAT?
VAT charged to the business when it purchases goods or services.

What is output VAT?
VAT charged by the business when it supplies goods or services.

How long should a registered trader keep their invoices?
It depends of the country. Usually is between 4 and 11 years. In the UK, 6 years.

Does a charity have to pay VAT?
Local laws apply here. Generally speaking charities do have to pay VAT on the purchase of goods or services, however there is usually specific VAT relief available to some charities in some countries. They can be exempt from VAT when they purchase goods or services related with their activity.

How often should VAT returns be completed?
In the UK, the standard accounting period is every three months however there are exceptions to this and with agreement from H M Customs & Excise a trader may submit returns over different periods for example every month.

Should I appoint a Fiscal representative in Belgium?
From 1 January 2002 foreign businesses established in the European Union may choose either to appoint an officially recognized authorized VAT representative in Belgium or may opt for direct VAT registration and hereby choose to fulfil VAT obligations in Belgium themselves. When one opts for direct registration, one can still appoint a third party to fulfil VAT obligations in Belgium.

For certain foreign businesses that are not established in Belgium, this may mean that a Belgian VAT registration is no longer required. Other foreign businesses may still be obliged to register for VAT purposes in Belgium.

Non-EU businesses remain obliged to appoint an officially recognized authorized VAT representative.

May the VAT Registration be necessary when costs are recharged?
Normally you do not need to register in a country in order to reclaim VAT on business expenses. But where several companies within a multi-national enterprise attend a conference, the head office may need to register if it recharges the conference costs out to the individual companies involved. Registration can be avoided if the conference is held in Germany. In some countries, the need to register for VAT purposes depends on the amounts involved.

Is worth the VAT recovery for business trips?
VAT costs on expenses such as accommodation, restaurants, and conference room rental vary considerably throughout Europe. For instance, the difference between the highest VAT cost – in Czech Republic – and the lowest – in Luxembourg – can be as much as Euro 125 for a 24-hour business meeting abroad. For a one night conference, the difference can be as much as Euro 240. Depending on the amounts involved, companies may or may not want to go through the process of recovery.

How much VAT can we recover in a conference?
Amounts recoverable vary throughout Europe, depending on where the meeting or conference is held. A few European countries allow you to recover the VAT amount on all expenses, many disallow recovery on one or two items, while some enable no VAT recovery at all. Sweden ranks highest for VAT recovery (100%) whilst in Greece, the Czech Republic and Poland a 0% VAT recovery rate exists for all travel and conference-related expenses.

Is VAT recovery easier for EU countries?
Reclaiming VAT can be a laborious procedure and the ease and speed with which it can be achieved again differs from country to country. Within EU, the repayment is through a procedure known as the 8th EU Directive. This involves filling out a relatively simple form, but application needs to be done, except in 2 countries, before the end of June in the following year. If the methods of recovery within the EU are harmonized, the 8th EU Directive will no longer exist and application will be carried out using a simpler procedure similar to that used to reclaim VAT locally.

Are the procedures for non-EU countries more complexes?
If a company in a non-EU country applies for recovery of VAT from an EU country, application is made through the 13th EU Directive procedure, which involves more formalities and can, therefore, be more costly and laborious. The company will usually need a representative.

How long does it take?
The time it takes to reclaim VAT varies. EU countries are duty bound to reimburse funds within six months of application, but some make efforts to grant recovery of VAT in less time and some may exceed the recommended time-scale. In some countries, like Hungary, claimants can receive interest from the tax authorities if the repayment is not made within the country’s statutory period.

Have the invoices to be in the name of the company?
Most countries require invoices to be in the name of the company, so business travelers should be aware of this in advance. There are some exceptions. For instance Norway and UK accepts invoices in the name of employees, and in Sweden, Austria and the Netherlands this exception applies to accommodation and restaurants.

Which are the Thresholds?
Some countries will only allow refunds for VAT if the amount exceeds a given threshold, which is usually low and depend of the period (3 months or 1 year) of the application.

Why to know more about VAT?
VAT/GST is the world’s primary method of taxing supplies of goods and services. All major trading nations (excluding USA) have a VAT system. Rates range from 0-25% and failure to consider VAT in pricing your goods/services could put you at a competitive disadvantage.

VAT is a self-assessing tax and the duty to register for VAT and correctly charge it falls on each individual business. The view of most tax authorities is that ignorance of the rules is not a reasonable excuse and should you fail to comply then you will be subject to penalties ranging from financial to criminal.

Are the service fees subject to VAT?
It has been widely assumed that all service fees are subject to VAT. This is not so as there are instances in which the charge is not subject to VAT.

What is the charge made for?
It is of crucial importance to distinguish between on the one hand charges made for providing advice to customers and on the other charges made for arranging “travel facilities” such as transport, accommodation etc.

Charges for advice will be subject to VAT in nearly all circumstances. The amount charged to the customer will be deemed to include VAT. However, VAT will not be due where the customer is a business based anywhere outside the country of invoicing or is a private individual resident outside the EU. Where the charge is made for giving advice, it makes no difference whether the advice is given in relation to accommodation, or transport or indeed any other service.