VAT Recovery for Financial Service Providers
When it comes to filing a VAT reclaim, all businesses find themselves making judgement calls about which invoices to include on their VAT return. Concerned about your bottom line, you’re reluctant to give up any of the VAT refund that you deserve, but the cost of the work hours needed to identify the relevant data on each VAT invoice could add up to more than the amount of VAT you’d receive from it.
When you have to calculate foreign VAT, which is a much more time-consuming process requiring that you manage VAT receipts that are torn, stained, or faded, you’re inclined to give up before you start. And when you’re a financial services provider, you face even more temptation to sacrifice your foreign VAT refund.
Partial exemption on VAT recovery
Financial services providers tend to have a partial exemption from VAT reclaim. This is because many of the services you provide are VAT exempt, such as insurance or mortgage services.
Hence the partial exemption rate. For example:
● If your mortgage company has a VAT recovery rate of 50% and
● An employee submits a hotel bill for £100, including £20 VAT
● You can only request a VAT refund of £10 – 50% of the total VAT paid
Once you’re only able to claim part of each VAT bill, the value of your VAT reclaim drops dramatically. Some banks have a VAT refund rate of less than 1% due to the type of services they provide. As soon as you start to include exemption, the company ends up spending more to pay an HR employee to process the VAT return than they can expect to make back in refunded VAT.
Foreign VAT return rate mirrors the domestic VAT rate
The challenges mentioned above are plenty to measure, manage and calculate when it comes to domestic VAT returns, which are pretty simple and straightforward to complete. But in the EU, tax authorities in other member states typically match the domestic VAT recovery rate. For example, if you applied for a foreign VAT refund for VAT paid in Germany, the German tax authorities would ask your domestic VAT rate and apply it themselves.
Your company is left facing a complex VAT reclaim process for a small amount of refundable VAT, like the amount paid on a cup of coffee in the airport. Thanks to the partial exemption calculation, this small amount of reclaimable foreign VAT becomes miniscule. As a result, many financial services companies simply opt out from pursuing foreign VAT refunds.
Outsourced VAT recovery solutions are too expensive
One alternative is to turn to outsourced VAT reclaim solutions, which take over the hassle of managing your VAT return in exchange for a percentage of the recovered VAT. But we’re already talking about very small amounts of VAT each time. Paying an external company up to 50% of the recovered VAT is not worthwhile.
Outsourced VAT recovery solutions don’t want the work
What’s more, outsourced VAT recovery solutions don’t even want the work. They make their money by taking a fixed percentage of your refunded VAT as their fee. It will take them a significant amount of time and effort to complete and submit your VAT return, and they can expect to make only a minimal amount due to the tiny VAT refund rate. It’s not worth it for them either.
Due to this reasoning, over £15 billion of refundable VAT goes unclaimed by businesses each year.
Why Way2VAT is different and thus worthwhile
Fortunately, there’s another solution – Way2VAT. Our patented technology uses artificial intelligence to read and understand your VAT receipts, completely automating the process of deciphering, verifying, and entering VAT into your VAT return. It reduces reliance on a shared service or processing centre to capture this information, making Way2VAT the only automated VAT recovery solution to fully eliminate manual data processing from the VAT reclaim process.
Our low overheads mean that we can pass on the savings to the client, charging reduced service fees and mitigating the risks of unclaimed expense VAT. Unlike most other VAT recovery firms, Way2VAT doesn’t have any minimum threshold on VAT receipts. We’ll pursue every drop of VAT, no matter how small, because we know that several hundred cups of coffee in the airport add up to big value for your company.
For all the details about filing successful VAT returns in the EU and other countries around the world, download our eBook.