If you are travelling to the UK this summer, whether it is for business or as a tourist, there are good chances that you will bring back lots and lots of souvenirs.
Before you head out, your peers will suggest you to shop from a Tax-Free store. Well, while “free” sounds good as it is, it is the Value Added Tax (VAT) refunds which make them so.
Yes, VAT is a tax based on consumption and not on income, and UK allows you to claim a refund on VAT, which is a hefty percentage of the goods you purchase. VAT amounts to 20% on the receipt of 30 Euros. And all thanks to the Retail Export Scheme, you are entitled to claim VAT back as your purchase is treated as export in UK, which are exempted from all sorts of taxes.
For being able to claim VAT, you need to obtain a special form (VAT 407) from the supporting stores, which is checked and certified by custom on your departure. The merchants you are dealing with have a Digital VAT Software which keeps a record of all the VAT related transactions. Therefore, with the form, the custom authorities can verify the purchase.
Even though the concept of claiming VAT refunds sounds easy, trust us, it is not. There are various nuances attached to it which you need to know by heart to proceed with the process. Here are a few of these nuances that you didn’t know about VAT Refunds.
- You can avail VAT refund only on Goods, not Services
You are entitled to a VAT refund on purchase of material goods because they are treated as exports by the countries. And, exports are exempted from taxes because they contribute to the economic growth of the nation.
However, services such as eating out in restaurants, staying at hotels, and purchasing tickets for a tourist spot, say a museum, cannot be subject to VAT refunds. There are instances where some heavy duty business travellers, who visit the country regularly, that are exempted from a percentage of tax. But, overall scenario dictates that locally consumer services are not counted as exports, hence, VAT is levied on them.
- VAT is Included in The Price
VAT, in UK, amounts to 20% of your purchase, and the refund is valid only when each of your receipt or purchase is over 30 Euros.
While calculating the VAT you need a refund of, you need to keep in mind that VAT is added on to the base price, before taxes. It is not added on the final price of the product. Therefore, VAT of 20% actually amounts to 16.7% of the price you pay for your purchase.
Furthermore, whenever you are paying for a product, don’t forget to check the fine print. Through it you will know the additional taxes added to the amount. And, VAT is already included in the price of the product.
- Your Goods Must Leave The Country Even If You Don’t
To qualify for a VAT refund, you must leave the country along with your new and unused purchase. Because currently the UK is a part of EU, you need to leave the EU for obtaining the refund. Once you make a purchase, you must leave the country within 3 months of purchase and not return until after 12.
You need to show the unused products at customs formalities before flying off to your home nation.
- Not All Stores Offer the Possibility of VAT Refunds
While you might be wondering if you can receive a refund on all your purchases, this is not the case. Only the purchases made from “Tax-free” stores such as big departmental stores and luxury brands stores are exempted from VAT.
Moreover, you should make sure that the store will make paperwork easier for you by providing the form and taking you through the entire process. Some big department stores in UK have well-established VAT offices.
So, before you leave the store, complete the paperwork at the vendor’s end, which might require you to prove that you are from outside the country.
Then, you need to get the paperwork stamped by a local customs agent. This requires you to bring along all the paperwork as well as the merchandise so that they can check that everything is new and untouched. Local customs agents, which can be found at border stations at the time of departure complete the formalities for you.
Remember, no stamp, no refund!
- Work things Out With Your Merchant
While dealing with authorities can be tough, that too when you have a plan to catch, you can make the process easier for yourself by coordinating with the merchant.
Sometimes, when you make a purchase and pay for it through your credit card, your merchant will create two credit card receipts- one of the original values of the product without VAT, another of price including VAT. Once you’ve completed the paperwork and got it stamped at the customs, you can mail it to the merchant. When the merchant is aware that you are leaving the country, the VAT chit will be torn off.
Alternatively, the merchants might ask for the complete amount in the beginning, with VAT. However, when they get the intimation that you are leaving the country, they refund the VAT.
Another way of avoiding VAT altogether is to ship it to your home country directly. Then again, this can cost you a fortune, all thanks to the ever-high shipping costs.
While getting a VAT refund can be a headache for you, there are people who specialise in the matter and can obtain a refund for you in a matter of time for a fee. Once you are through with purchase and have your paperwork stamped, you can find an agency dealing in refunds to get the refund immediately. They deduct 30% of the total VAT refund you were supposed to receive but getting the work done hassle-free is worth the fee!
There you go! The above pointers contain pretty-much everything you need to know about making purchases from Tax-Free stores and getting VAT refunds. Make sure that you remember them ad don’t end up making an error that can cost you your refunds.