A customer from the EU placed an order, and paid VAT on it. Now they have come back and said that as an EU customer they shouldn't have payed VAT.

At that time the website didn't offer the option to provide a VAT number for exemption and just charged everyone VAT.

Where do we stand on refunding the VAT for these past orders, and can't they just claim the VAT back themselves...?
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I may be wrong here but I don't believe the reverse charge mechanism (which you are referring to) is a requirement, I think it is voluntary and you can apply it if you want too. If you do charge them VAT then they should simply claim it back against there own VAT bill.

If I am wrong I am sure someone will say so.
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I have a major problem with the VAT system... if a non-citizen over here buy something then they can claim back the VAT: why? They are getting exactly the same product or service and should pay whatever amount of VAT too if the transaction has taken place on British soil.

I am not too sure neither but I think you can only zero rate them if they give you an VAT registration number..... if they didn't then tell them to sling their hook lol
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The only EU customers who are able to get vat free are those companies who supply their full vat number to you, if they are not vat registered you have to charge vat
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I have a major problem with the VAT system... if a non-citizen over here buy something then they can claim back the VAT: why? They are getting exactly the same product or service and should pay whatever amount of VAT too if the transaction has taken place on British soil.



The only way that a "non citizen" can get the VAT back is if the goods are exported - not just from the UK, but from the EEC. This is done in one of two ways. Option 1 - the customer pays for the goods (ex VAT) while here and the vendor sends them direct to the customers address.

Option 2 - the customer pays for the goods in full and takes them with him. When he leaves the country, he gets a form completed to say that he's taken the goods with him, and then makes a claim for the VAT. (Not sure if he gets it from the retailer or from HMCE)

So it's not exactly the same transaction, and it may be subject to tax or duty when imported to his home country
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just to be clear, it is a proper company with a VAT number, so they are entitled not to pay VAT. The question was more what is the best way to fix it now - tell them to claim it back themselves or just refund it and re-issue the invoice with their VAT number on it.
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Unless the company is registered i the UK, they can't really claim the Vat back from HMRC. Theoretically they can by going to international claims division etc, but its a pain in the butt and perhaps not worth the hassle.

Easiest method is bookkeeping ways to raise a vat only sales credit and send them a refund bacs, or refund cheque. That way the supplier just nets the refund chq off against its next remittance to HMRC aka HMCE

It would be a good will gesture. However you do not state whether its physical goods e.g. desks etc that were exported, or electronic media e.g. software, intellectual property etc. If its not physical goods, there are exceptions to not zero rating the goods. The zero rating mechanism was dreamed up to help exporting of physical goods not computer bytes.
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I import and export daily so I know how it works from experience:

The way it works is that the product in any EU country when it is for export should have tax zero rated when an appropriate VAT or equivalent number is supplied.

Then when the product arrives in the customers country, the customer should pay their own countries equivelent of VAT.

If you charge them VAT by accident, they have to go about reclaiming it directly from our government through a claims diversion but obviously it has to be of a decent amount to make it worthwhile.

Depending on their country of business, it will likely mean they have not only paid the VAT but will have to pay the local tax as well, so get hit twice, hence why they are likely complaining.

At the end of the day, if they provided you a VAT number, the mistake is on your part and you should refund them the money. If not then they should reclaim it or you could make a good will gesture.
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just to be clear, it is a proper company with a VAT number, so they are entitled not to pay VAT. The question was more what is the best way to fix it now - tell them to claim it back themselves or just refund it and re-issue the invoice with their VAT number on it.
They didn't provide a VAT number... it's their problem not yours. Yes you should have made it possible for them to send one and glad you sorted this problem, but they could have rang or email you it instead prior to the transaction to enquire this...
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just to be clear, it is a proper company with a VAT number, so they are entitled not to pay VAT. The question was more what is the best way to fix it now - tell them to claim it back themselves or just refund it and re-issue the invoice with their VAT number on it.

If an EU customer provides an EU VAT number then the EU seller (you) is obliged to reverse charge (that is, charge at 0% VAT rate, you reclaim the input tax incurred and customer accojnts for VAT in their own country).

If EU customer doesn't provide VAT number then you must standard rate the supply.

If after the event the EU customer provides the VAT number then it is good business to issue a credit note for the original invoice and then reinvoice at the zero rate.

You don't have to do this credit note but you may lose a customer as the EU customer cannot claim the VAT back via their own VAT return, they have to claim via the UK government and it can take upto 6 months.

Plus, why collect and pay over VAT to HMRC when you don't actually have to, your product is cheaper and you have a lower cheque to write come VAT return time?.
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Then when the product arrives in the customers country, the customer should pay their own countries equivelent of VAT. hmm, I missed that comment first time around... Can we just reverse this question, as I sometimes buy from abroad and enter my VAT number.

So, I go to a foreign website; I enter my VAT number, so the cart and invoice shows no tax. Are you saying that I now need to do something to declare this to HMR&C, and need to pay 17.5%?
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hmm, I missed that comment first time around... Can we just reverse this question, as I sometimes buy from abroad and enter my VAT number.

So, I go to a foreign website; I enter my VAT number, so the cart and invoice shows no tax. Are you saying that I now need to do something to declare this to HMR&C, and need to pay 17.5%?

That is correct. You would receive the invoice from the EU supplier and calculate the UK VAT at 17.5% on the value of the goods and pay this over on your VAT return as output tax...but at the same time you would also reclaim it as input tax. This assumes you are able to recalim 100% of your input tax (ie, if you are an exempt business like a bank, you'd have to pay over the output tax but be unable to recalim the input tax).

In effect, it would be an in/out transaction, nil effect. If you've not done this before then start to do it now, but I'd not worry about historically getting it wrong provided you are a fully taxable business (one that recalims all input VAT) as there is no loss to HMRC, just administratively wrong. if you are an exempt or partially exempt trader then you may need to calculate what you owe HMRC!.

That sounds harsh, but it would be the same outcome as if you had made the purchase in the UK. Otherwise, UK businesses would buy from other EU countries to avoid being charged VAT, especially if that UK business couldn;t reclaim it. The reverse charge rule kicks all that into touch.
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hmm, I missed that comment first time around... Can we just reverse this question, as I sometimes buy from abroad and enter my VAT number.

So, I go to a foreign website; I enter my VAT number, so the cart and invoice shows no tax. Are you saying that I now need to do something to declare this to HMR&C, and need to pay 17.5%?

Hello.
Yes if the products attract VAT in England then it should be added.

However there are exceptions which I would recommend you call the VAT helpline and just double check. I believe it is supposed to be just advice even though they ask for your VAT number but just decline to give it on the off chance.
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not sure I understand why it would be an input and output (assuming it's just an expense and not something I am selling on)?
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not sure I understand why it would be an input and output (assuming it's just an expense and not something I am selling on)?

It is confusing I know - kind of disregard everything you know about VAT for reverse charge if you can.

Think of it like this. If you bought the supply from a UK supplier they'd charge you VAT (input tax) and you'd recover it. If you bought from an EU supplier they don't charge VAT, so you'd be more inclined to use the EU supplier and this distorts competition.

So, when you buy a supply from an EU member, you have to charge yourself the VAT that the supplier didn't charge you and then you recalim it back as input tax as normal. Again, distortion would arise if you were an exempt trader (like a bank) and so you can't reclaim input tax and so you'd be inclined to buy in supplies from abroad to avoid VAT.

In addition, the EU supplier would have to register for VAT in the UK and every other EU state they trade in which is just stupid, hence why reverse charge is used to simplify things, keep a level playing field and to avoid the need for multiple VAT registrations.
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It is confusing I know - kind of disregard everything you know about VAT for reverse charge if you can.

Think of it like this. If you bought the supply from a UK supplier they'd charge you VAT (input tax) and you'd recover it. If you bought from an EU supplier they don't charge VAT, so you'd be more inclined to use the EU supplier and this distorts competition.

So, when you buy a supply from an EU member, you have to charge yourself the VAT that the supplier didn't charge you and then you recalim it back as input tax as normal. Again, distortion would arise if you were an exempt trader (like a bank) and so you can't reclaim input tax and so you'd be inclined to buy in supplies from abroad to avoid VAT.

In addition, the EU supplier would have to register for VAT in the UK and every other EU state they trade in which is just stupid, hence why reverse charge is used to simplify things, keep a level playing field and to avoid the need for multiple VAT registrations.

I couldn't have said it better myself.
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Great summary 3pic!
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