HOW TO PROCESS VAT RECLAIM FOR IMPORT VAT (DDP)
Managing your VAT return is a complicated process at the best of times, but it gets even more challenging when you add shipping costs for delivery duty paid (DDP) items into the mix.
Generally, your company’s VAT refund comes from VAT that the company paid on products and services that were purchased, not products that your company sold or supplied. But Import VAT brings another level of complexity to VAT reclaim.
Preparing a VAT return involves consolidating data from a variety of sources and checking the relevant accounts and underlying documents to ensure accuracy. This includes standard AP transactions and also Travel Expense items. However, import VAT can come with an entirely new set of accounts, documents and rules to understand.
WHAT IS DDP?
DDP is an incoterm, meaning Delivery Duty Paid. i.e. that the selling party will deliver goods to a final destination and be responsible for other import items, e.g. VAT, sales tax, customs charges, and import duty.
There are many genuine business reasons why a business may wish to use the incoterm DDP, including;
- Full visibility on the transaction until they
- Temporary import of goods, e.g. for testing, repair or sample purposes
- Commercial sensitivity on the import / sale price
A recent example we saw was: a car parts manufacturer that needed to supply replacement parts to a customer repair location. Not knowing the full details of the repair garage and as they are required urgently, they are shipped direct.
WHAT ARE THE CHALLENGES OF IMPORT VAT?
One of the main issues involved in import VAT recovery is that you have to pay VAT and other charges before the item is sold to the end consumer. That means that you have to estimate how much VAT will be due on the final sale and pay it in advance; but if there’s a discrepancy between your estimate and the end total, you could get into trouble with the tax authorities.
Paying too much in customs duty could bring down an accusation of trying to bribe the officials, while paying too little tax could leave you open to charges of VAT fraud. This makes it vital to keep track of every step of the paper trail, so that you can demonstrate transparency and compliance.
With import VAT items, it’s also up to you to get your VAT refund. Sometimes the items are quite small and inexpensive, but frequently the VAT can add up to a significant amount of money. You don’t want this VAT to slip away to join the £15.3 billion worth of business VAT that goes unclaimed each year. At the same time, your HR employees have plenty of work to do. Understanding unstructured, non-standard VAT shipping invoices can be so time-consuming that you might feel that you have to let it slide.
AUTOMATING VAT RECLAIM KILLS MANY BIRDS WITH ONE STONE
Fortunately, there is a solution. Automating your VAT reclaim saves time and effort on completing your VAT return, and it also helps you to avoid difficulties regarding tax visibility and integrity. An automated VAT refund solution captures every invoice and receipt, even turning non-standard shipping invoices into readable text files. This helps remove discrepancies between estimated and actual expenses as well as increasing the size of your VAT refund.
VAT reclaim mistakes are easy to make, especially when you’re sending items with the Incoterms DDP, but you can prevent them when you use the right tools. For all the details about filing successful VAT returns in the EU and other countries around the world, download our eBook.