EU VAT Refunds - Can anyone solve this problem? Help!

[Sam Calor]

Hi All,

I have tried seeking professional help but it has ended in a dead end. I currently have nearly £20,000 worth of VAT in limbo which I am struggling to reclaim!


Background & Key Dates:

I started a new business through a LTD company here in the UK. We purchased some expensive machinery from Germany, not far off £75k + VAT.

I am fairly experienced with business/companies/vat etc, and I believe you have up to 4 years to claim back the VAT on capital equipment. For example if you register for VAT after the capital equipment is purchased you can claim it back down the line.

I called HMRC to explain I was purchasing an expensive asset from Germany and would we be OK to claim back the VAT in the future, as we had not started trading (company was formed) and were also not registered for VAT at the time we needed to purchase this machinery (due to site development etc). Their response was as it is in the EU there won't be a problem (but there is!). So, I continued with the purchase and progressed with the site development.


Date of incorporation (UK Company) - 2015
Date of machinery purchase (I paid the full £75k + 19% German VAT, expecting to claim it back when my VAT registration was through!) from Germany - March 2016
Date we started trading - April 2016
Date of application to register for VAT - January 2017
Date of VAT certificate - March 2017


I attempted to use the 'EU VAT REFUND' scheme through HMRC online portal. However, it will not accept my dates due to the PURCHASE DATE of the capital equipment being before the VAT registration date.


After long conversations with HMRC, the German VAT authorities and a German accountant I have reached the following point:

Germany refers me back to HMRC and say they can deal with it at their end
HMRC originally said you have to speak to Germany
HMRC then said (different advisor/technitian) you are not eligible due to following rules:
My German advisor replied with an email to say the German authorities have referred him to the below rules also.

---------------
(I tried to paste link here but the forum will not allow) - please search for:

Notice

VAT Notice 723A: refunds of VAT in the European Community for EC and non-EC businesses
Updated 7 September 2016


(ABSTRACT):

2.3 Who can make the application (to the EU VAT REFUND SCHEME)

The applicant must be a taxable person established in a Member State other than the Member State of refund, or their authorised agent.

The applicant must meet the following conditions.

(a) The applicant must not be registered, liable or eligible to be registered in the Member State from which they are claiming the refund.

(b) The applicant must have no fixed establishment, seat of economic activity, place of business or other residence there.

(c) During the refund period the applicant must not have supplied any goods or services in the Member State of refund with the exception of:i) transport services and services ancillary thereto ii) supplies of goods or services where VAT is payable by the person to whom the supply is made.

--------------------


So, reading the rules I have understood that because I was not a 'taxable person' (ie. registered for VAT) at the time of the purchase, I am not able to claim this back now.


I feel I was given the wrong information by HMRC but unfortunately no way to prove this as it was in 2015 when I was planning the business. It was just a call to the helpline, it won't be logged anywhere as company was not even started.


After speaking at length with HMRC they have suggested I could apply for my VAT to be backdated. However, I believe this would mean my revenue for the 8 months prior to becoming VAT registered would then be subject to VAT (which we did not charge our customers!). This would result in a being worse off as the VAT bill would be bigger than the reclaim.

We did not register for VAT right away as we were not sure how the first year would go, and were not sure how soon we would hit the VAT limit. With the business being seasonal it took a great leap towards the end of the year and that is when we registered.

My advisor had originally spoke about VAT court in Germany - not sure about this.
Someone mentioned VAT court in UK - again not sure about this.
Someone mentioned it may be possible to get the German company who we purchased from to assist in some way?


If we had purchased the same machinery from a UK company (which would have actually of been doable as there is a UK branch which would have purchased on our behalf, but it was causing complications with the asset finance so we decided to go direct) then we could have claimed this VAT back without any issue.

Unfortunately it seems we are in a very sticky situation.


Can anyone on here shed any light on the matter?

Free or paid advice accepted - providing there is a genuine route we can take with your help?


All help appreciated in advance.

Thanks.

 

[The Byre]

We get this question here about once a week and it nearly always refers to stuff bought in Germany.

The German tax authorities (Finanzamt) tell their clients that without a VAT number, they must charge either 19% MwSt (Mehrwertsteuer) if they sell in Germany, or 20% if they sell to the UK and send that VAT to HMRC. The whole nonsense about reclaiming VAT and/or MwSt falls at the first hurdle of simple practicality. Under German law, if you are a business, you must be registered for MwSt or VAT.

In Germany, there is no such thing as a company that is not registered, so no allowance is made for those who are not registered. In Germany, registering for MwSt is simple, quick and easy and is part and parcel of the same very simple process as registering as a commercial enterprise. As a result, anybody asking for special treatment is regarded as 'trying it on'!

The T&C under which you purchased that equipment, will have included something along the lines of "A consumer shall mean any natural person who concludes a legal transaction for purposes that can be primarily attributed neither to a trade nor a profession (§ 13 of the German Civil Code). A business shall mean a natural or legal person or a partnership with legal capacity which, in concluding a legal transaction, is acting in the exercise of its trade or profession (§ 14 of the German Civil Code)."

The above means that you agreed to comply with the T&C of the vendor and did so under German law, which requires you to provide proof of business registration in the form of a VAT number at the time of purchase.

You (according to your post) bought the machinery in Germany and paid 19% MwSt and not 20% VAT. i.e. you bought the machinery as a German end consumer and not as a UK business.

I attempted to use the 'EU VAT REFUND' scheme through HMRC online portal. However, it will not accept my dates due to the PURCHASE DATE of the capital equipment being before the VAT registration date.

Under German law, your status is that which you declare at the time of purchase. You cannot alter that status retrospectively. You are either a business, or a consumer and as a consumer, you enjoy rights considerably more advantageous to anything you may have in the UK.

Not only that, but you did all this two years ago and the 19% MwSt has been paid to the Finanzamt and they are not going to give it back, as you traded as a consumer. All this nonsense about being able to not pay VAT or MwSt exists in the fantasy of HMRC only. The German Finanzamt knows only two types of transaction for a business registered in Germany, B2C and B2B. You (and not the vendor) set the conditions and status of the transaction.

That status cannot be altered retrospectively!

By paying 19% MwSt, you declared yourself to be a German end consumer and enjoyed the considerable rights of a German end consumer, such as three years guarantee, 14 days right of return and many other rights. Under German law, you must provide the vendor with a VAT number at the time of purchase, if you want to avoid paying either 20% VAT (as a UK consumer) or 19% MwSt (as a German consumer).

 

[Sam Calor]

Hello,

Thank you for the detailed response.

I am wondering now what the purpose of the EU VAT REFUND scheme is in reference to Germany based on what you have said.

Is it possible to be VAT registered in the UK, purchase something from Germany (and for whatever reason you pay the 19% german VAT) then claim it back without any issues using the EU scheme?


I truly feel hard done by. We were given the wrong advice (which, I know, I should have researched further) by HMRC. I was foolishly told that 'there would be no issues as it's in the EU' by some advisor! Very angry at this.


I am wondering if it would be possible to pursue the following course of action and see if I can get anywhere:

Send letter detailing the events and complain to HMRC about the advice given.
On the back of this send a request to change my effective date of registration so that the EU refund will be processed.
The 'advisor' who told me that my date could be changed also noted that it is at the discretion of HMRC whether they backdate all of the VAT that would potentially be owed on the revenue pre vat registration date - Therefor if I explain the situation that we are only trying to get back VAT for the single capital expense it may help?

The annoying part is we could have done all of this through the UK distributor of the machine. We could have then claimed that VAT back against our now Vatable revenue.

However I look at it, I feel robbed of this £20k.


Failing all above - is there any point in trying with the UK Vat courts to plead my case?

If my situation is looked upon by a logical person at HMRC do you think they can see our point?

It is not like I am trying it on, as previously mentioned we have just taken the wrong route of purchase which has cost us a small fortune. We could have legally purchased through the UK without any of these issues, albeit a bit of a headache to chop and change our asset finance .



Thanks Again.

 

[Sam Calor]

Another note - we only have until September 2017 (so around 60 days) to submit the new EU REFUND before it then gives us another major problem as we will be officially out of date with Germany.

 

[The Byre]

Well, there's no harm in trying, I suppose.

But if you bought the machinery in Germany and paid 19% MwSt, then you conducted the entire transaction under German law. There is no difference if an EU citizen of another country buys something in Germany, or a German citizen.

A German court would probably state that you have enjoyed two years of consumer protection and all the rights and privileges that brings with it and now you are seeking to alter that state retrospectively. The judge would (IMO) probably be of the opinion that the transaction took place in Germany, under German law and was between a business and an end consumer.

But you have another hurdle to overcome. The tax collecting authority in your case is the company you bought the goods from. As stated above, they will have, with almost certainty, stipulated in their T&Cs that you must give them a valid and current VAT number, in order to buy the goods without VAT or MwSt. Every German company I deal with, states in its T&Cs that a retrospective alteration of tax status is not possible. They are forced under German law, to become a tax collector and must adhere to the rules, guidelines and laws of the Finanzamt.

They have to do this by law. The Finanzamt demands a VAT number from them, if those goods are to be booked at VAT or MwSt free.

Just for you, I went grubbing through the German tax code on MwSt just now, to see if there is not some magic way to get the MwSt back that I was not aware of. Under German law, there are two ways that a person or company can avoid paying MwSt.

1. They live outside the EU and the vendor agrees to fulfil the various formalities to provide them with a certificate of sale to a non-EU citizen. The vendor does not have to do this, but many do have a sheath of these forms under the counter for more expensive items. To qualify, the customer must provide the vendor with proof of nationality.

2. You provide the vendor with a current and valid VAT number that they can enter into the German on-line system. Again, they are under no obligation to do this, so it always pays to read the T&Cs carefully and for more expensive items, to discuss the transaction with the vendor.

In all cases of a refund of VAT, MwSt or any other forms of purchase tax, German law requires you to apply for that refund BEFORE the 30th September of the year following the purchase.

And before you state the obvious, yes, the VAT laws rules and guidelines across Europe are (to use technical accounting language) a f**king mess. Not only that, but the people working at HMRC seem to be in blissful ignorance of what goes on outside of the UK.

A summary in English is here - https://ec.europa.eu/taxation_customs/business/vat/eu-vat-rules-topic/vat-refunds_en

Had you paid VAT and not MwSt, there may be a theoretical right to a refund from HMRC and it is possible in theory to get them to de-trouser the money.

But now come hurdles numbers three and four -

Under German and EU law, you have failed to fulfil two important requirements for a refund -

Firstly (as stated above) - Application to be submitted by 30th September of the calendar year following the refund period.

Secondly - The Member State of Establishment shall not forward the application if, during the refund period, the applicant is not a taxable person; or he carries out only exempt supplies; or he is under the special scheme for small enterprises; or he is covered by a flat rate scheme for farmers.

So the bad news is (IMO) that the money is gone!

In answer to your original question, I can only quote Dickens -

“Jacob!” he said imploringly. “Old Jacob Marley, tell me more! Speak comfort to me, Jacob!”

“I have none to give,” the Ghost replied. “It comes from other regions, Ebenezer Scrooge, and is conveyed by other ministers, to other kinds of men.”

 

[Sam Calor]

Thanks again for the detailed response.

Just to clarify we purchased the goods in March 2016, there for we have until the end of next month (sep 2017) to submit the refund. Not sure if you picked up on my dates the right way?

Anyway, that would not matter if we cannot get HMRC to backdate our VAT registration.


I have decided to try the following and seemingly only option available to me now... thoughts and input welcome!


Write to HMRC explaining the circumstances and how we were given incorrect advice.
Request they backdate our VAT registration (I believe the invoice was dated July 2016 so as long as we have a date of registration prior to then).
Hold out hope that they do not request us to pay the backdated VAT from the new backdated VAT date until when we actually registered (period from July 2016 - March 1st 2017).
If they do charge us the VAT on revenue during this period it will be covered by the refund from Germany, so it might be worth the gamble.

My theory (correct me if I am wrong) is that if HMRC change our VAT date to a date PRIOR to the invoice date on the German invoice, then this will then comply with German refund rules... (I cannot imagine the fact that our VAT registration date was amended will be conveyed to Germany? The online EU REFUND system does not have any way of doing this?)

I was advised by the technician and HMRC helpdesk that by amending your VAT registration date (if the allow it), does not automatically mean they backdate VAT on revenue through those dates.

A lot of ifs and buts at the moment.

It seems to be my last option and then will have to accept defeat and lick my wounds.


Thanks

 

[KAC]

Why don't you have an accountant to advise you on tax and VAT matters particularly at that level

The worst advice available is that provided by HMRC as you are unlikely to be speaking to a qualified individual.

More to the point there is minimal comeback on the advice they provided. At least if you had taken paid for advice from a qualified accountant you may well have been able to rely on their professional indemnity insurance to recompense you for dodgy and incorrect advice.

Hopefully that wouldn't have been necessary as they would have given you the correct advice

 

[The Byre]

I have to agree with the above. The poor saps working in some slave-hole for HMRC are just call-centre skivvies and hardly in a position to tell you much about anything.

Despite knowing a fair bit about business and various tax laws around Europe and the UK and Germany in particular, I do not touch the books, but leave that to an expert and I do not make any major strategic moves, without consulting our accountants, either in the UK or Germany - or sometimes both!

You need to be absolutely clear about your legal status at the time of the purchase. As you are resident in the EU, you fall into one of four possible categories (1) Domestic end-user, subject to German consumer law and liable for MwSt; (2) German business customer, subject to German business law and liable for MwSt; (3) UK consumer, subject to EU consumer laws and liable for VAT; (4) UK business, subject to EU business law and not liable for VAT on provision of VAT number.

German tax laws require the vendor to establish the status of a customer and for that customer to prove their status. If the vendor gets it wrong, they are fully and solely responsible and must pay any uncollected taxes. So if you buy an object in Germany for €100,000 and provide a VAT number and therefore do not have to pay €20,000 VAT and that VAT number proves subsequently to be false or just not valid at the time of purchase, the Finanzamt will demand the €20,000 from the vendor.

The same applies to import duties, alcohol taxes and any other public liabilities that may adhere to a product. For that reason, German companies have to be ultra careful.

So here are some questions -

1. Did you consult an accountant on this matter, before making the purchase?

2. Did you pay MwSt or VAT? - you said MwSt, but are you sure on this?

3. Who organised the transport of the item(s) to the UK, you or the vendor?

4. How did you pay and in which currency?

 

[UK Contractor Accountant]

I think you will find that the EU Vat Refund Scheme that you refer to applies to goods & services consumed in Germany- fuel, accommodation, food, drink, tools etc.

 

[KAC]

I think you will find that the EU Vat Refund Scheme that you refer to applies to goods & services consumed in Germany- fuel, accommodation, food, drink, tools etc.

I'd forgotten that

 

[Paul Kelly ICHYB]

HMRC record the conversations you have with them. If you question was clear and precise and their response was specific, whilst they will argue against the advice,,they will accept they gave it and act accordingly.

What has your accountants advice been so far?

 

[STDFR33]

,they will accept they gave it and act accordingly.

Do you mind elaborating?

 

[Paul Kelly ICHYB]

In my case, they accepted the gave wrong advice based on the question I asked and allowed a claim, however, the question in the conversation needs to be precise.

Worth saying that they do/did have caveats dotted around saying that their advice is for guidance only....

Sadly, the real onus falls on the OPs shoulders as, with 200 stake, he should have got advice from his accountant, who he could have held liable if it went wrong. ...

 

[STDFR33]

Are you saying that HMRC advised you to claim an expense that was deductible for tax, but should not have been allowable, but upheld the claim because of the advice they gave you?

 

[Paul Kelly ICHYB]

It was a lot more detailed than that, but, essentially, yes.

I stress that it wall as based on the detail of the question I gave.

 

[STDFR33]

It was a lot more detailed than that, but, essentially, yes.

I stress that it wall as based on the detail of the question I gave.

That's incredibly unusual.

They'll normally waive the penalties, but the tax is still due.