The potential for a ‘no deal’ Brexit is leading the Chartered Institute of Taxation (CIOT) to urge UK businesses to claim the local VAT incurred in the EU by their staff ahead of Brexit Day. Without a Brexit deal, UK businesses will have to deal with countries individually and use paper forms for each country. That will take longer both to administer and recover the VAT on the expenses.
If a business wants to use the EU VAT refund electronic system to submit a refund claim for 2018 they will need to do so by 5pm on 29 March 2019 (Brexit Day). If claims are submitted after that, HMRC will not be able to send their claim on to the relevant EU member state, and the country’s individual processes will have to be followed instead. Where businesses file an annual claim for 2018 and subsequently further 2018 invoices are discovered, then the VAT recovery on those later invoices may be at risk. This will apply even if a transitional agreement is signed as some Member States may not accept a second annual claim for 2018 where the initial 2018 claim (filed in Q1 2019) has started to be processed.
The warning comes as France and Luxembourg have made it clear that EU VAT reclaims from the UK under the EU refund process will not be accepted from 28 February 2019 and post 29 March 2019 in the case of Belgium.
John Cullinane, Tax Policy Director at CIOT, said:
“Businesses should act now if they have to claim back VAT on expenses from working in the EU to ease any potential impact on their administrative time and cash flow after Brexit Day.
“The process for reclaiming EU hotel, travel, restaurant and similar expenses incurred by UK companies is awkward in the event of a no-deal Brexit. Instead of the current simplified online claims process with HMRC, recovery claims will be paper-based with separate applications to each EU country. There may be a stricter level of evidence needed to support the claim, depending on how individual countries decide to deal with the UK. This will be a nuisance to business in terms of administration time and likely delays in getting the VAT back. Some companies may even incur costs by choosing to pay outside recovery specialists or overseas agents to take them through the replacement paper-based regime.
“We think the concerns being highlighted about the EU member states’ willingness or even legal obligation to honour claims are unlikely to be realised because of the likelihood of reciprocal agreements between the UK and these countries on expenses in the event of a no deal Brexit.”
Notes for editors
The Chartered Institute of Taxation (CIOT)
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 18,500 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk