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UK VAT reclaims for overseas businesses

Purpose of note “Reclaiming VAT for overseas businesses”

This note explains how an overseas business that is not allowed to register for UK VAT can still reclaim import and other UK VAT. This situation often applies to overseas companies active in UK construction projects. I have written it in response to a number of questions that we have had from our clients asking us to clarify the position.

Normal rule for reclaiming VAT

In most cases, overseas businesses that do business in the UK are either eligible or obliged to register for UK VAT. These businesses would normally reclaim UK import and purchase VAT through their UK VAT returns.

Special rules that prevent overseas businesses registering for VAT

But sometimes overseas businesses that do business in the UK are not allowed to register for UK VAT. For example, there’s a special rule that applies to an overseas business that doesn’t have a permanent presence in the UK but works on a UK construction project. In this case, provided that the overseas business’ customer is a UK VAT-registered business, the overseas business is not allowed to register for VAT. Instead, it needs to zero rate its invoice and its UK customer needs to account for the VAT using the reverse charge mechanism. This special rule means that overseas business can’t register for VAT and, therefore, can’t reclaim input VAT on its UK VAT return. There are various other special VAT rules like this one.

Special rule that allows overseas businesses to reclaim UK VAT

There is another rule that says that an overseas business can reclaim input VAT if it is established in a country that provides reciprocal arrangements for refunds to be made to UK businesses. This rule applies provided that the overseas business is not eligible to register for UK VAT. Businesses that can’t reclaim VAT because of the first special rule can often reclaim VAT because of this rule.

Providing the overseas business qualifies it should reclaim the VAT using the form VAT 65A.

Reclaiming Import VAT

Import VAT may only be claimed by the owner of the goods when they are in the UK. Therefore, an overseas business that does not have a UK establishment can usually only reclaim the import VAT if the overseas business:

  • retains legal title of the goods until after the goods have been delivered to the UK; and
  • is the importer of record; and
  • UK EORI number is shown in box 8 of the import declaration; and
  • pays the import VAT.

Business in or with the UK – different rules apply

Doing business in the UK is different to doing business with the UK and different VAT rules apply. To emphasise this distinction I have highlighted the word in, in red.

Purpose of note “Reclaiming VAT for overseas businesses” This note explains how an overseas business that is not allowed to register for UK VAT can still reclaim import and other UK VAT. This situation often applies to overseas companies active in UK construction projects. I have written it in response to a number of questions […]

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