If your business is VAT registered, you are entitled to reclaim VAT. While this may sound straightforward, VAT compliance is a complex topic and one where errors can be both frequent and costly. VAT legislation and regulations change regularly around the world and keeping up can be a challenge.
However, the benefits of VAT compliance pay for themselves and you want to be able to reclaim any VAT you've paid on eligible expenses. Below are some of the most frequent issues when it comes to VAT compliance, and how to avoid them.
A piece of heat transfer paper can be the cause of many woes: it gets crumpled in pockets, fades quickly and can easily be mistaken for something inconsequential and thrown away prematurely.
Unfortunately, that piece of paper is necessary to appropriately document a purchase and allow you to reclaim VAT on it.
Thankfully, tricky situations are easily avoided with the use of a mobile expense management solution which lets your employees scan receipts on the go and automatically store them in your accounting software. Come the end of the month, your Finance department isn't chasing people for missing receipts they then spend hours frantically looking for, and everyone has more peace of mind.
It is a common mistake to reclaim VAT on both the proforma invoice as well as the invoice itself. The time lapse between receiving the two is often such that one does not remember processing the first when the second arrives. However, with the use of an automated expense management solution (EMS) which flags duplicates before they are erroneously entered (and claimed), duplicate claims are no longer an issue.
Your Finance department can rest easy knowing that if their memory doesn't recognise an invoice, the EMS will.
If you do business in and with multiple countries, you know how difficult it can be to keep up to date with the tax regulations of each. Changes happen regularly as well as on an ad hoc basis, such as in the case of the European VAT tax relief measures announced earlier this year to help businesses weather the hardship caused by the pandemic.
For global businesses, it is often worth enlisting the services of a VAT recovery agent to avoid any mistakes (and the work that comes with ensuring VAT compliance). VAT recovery agents make it their business to keep up to date with changes in VAT regulations around the world. With this knowledge, they guide you in identifying and submitting eligible claims, without running the risk of unknowingly short-changing yourself on your claim or making costly mistakes.
The days of treating prospects or important clients to a lavish meal and entertainment are on the decline. Indeed, most business owners now think twice before offering their customers expensive entertainment as this category of expenses is usually not eligible for VAT reclaim and can lead to red flags in case of an audit.
The good news is, you can still freely reward your hard working staff with team building activities and holiday parties: this type of entertainment is most often eligible for VAT reclaim.
The line between the two can be blurry, so make sure that you are in complete compliance with the VAT regulations that apply to avoid unwelcome tax audits and penalties.
While automated software can do a lot for you, human verification remains important for complex matters such as VAT compliance. If this isn't something you have the resources to do in-house, consider investing in expense management software with both automated inputs and human verification. Consider, also, partnering with VAT recovery agents whose job it will be to ensure that your VAT claims are always 100% compliant, thus completely removing the risk of huge financial penalties for you.
VAT reclaim really isn't that complicated. With reliable business software and experienced partners, it can even be a source of increased profitability.