Ann Jones

My role as Managing Director of Lowendal UK is to show large international companies where they can save huge sums of money at comparatively low cost to the firm itself. There are all manner of rules and regulations to adhere to combined with a complex European rebate system to negotiate which seems to hinder companies trying to reclaim their VAT expenditure. All this ensures you’ll be left with a prolonged headache if you try and deal with the issue all on your own.

I’m still amazed at how few companies insist in conducting this relatively simple process considering its rewards. The most recent research shows that EU-based businesses pay out between €7 billion to €8 billion ($8.2 billion to $9.4 billion) every year in VAT with most costs being incurred through accounts payable invoices, inter-company invoices, hotel accommodation, transport and invoices for fuel. One of the most surprising figures is that only €4.5 billion of the amount paid out is being successfully reclaimed.

So why are companies missing out on reclaiming that amount of money? Well, many of the staff involved in international transactions are simply unaware of what can and cannot be reclaimed. Companies also assume, for example, that the VAT bills for hotel costs are minimal but over the course of a year larger companies are often surprised by how quickly the reclaimable VAT on accommodation can add up. Hotel bills are just one source of commonly rejected claims. It is common practice for hotels to raise their invoices to the employee, not the company - a practice that ensures any subsequent claim is swiftly rejected.

One company my team and I have worked with recently is a global communications firm that completes business in more than 150 countries. Their VAT manager regularly has to issue memos to their employees about the correct way to raise their invoices to ensure the company does not incur a mounting VAT deficit. If this is not done, the VAT has to be claimed back with reworked invoices which is, as I’m sure many of those involved in business understand all to well, both annoying and time consuming.

Another solution that some businesses consider as an option is to become VAT registered in each country they conduct business. But to do that is likely to result in costs of between £15,000 to £20,000 each time. If you’re only conducting one deal in that particular country, you’ll have the VAT man in that country hounding you for returning blank books in subsequent years. Unfortunately there is no getting round this.

Time is another big barrier to VAT recovery. Under the EEC 8th and 13th Directives all claims must be made no later than six months after the end of the calendar year, however many administrations take much longer to actually accept a valid claim and provide a refund. With some companies waiting up to two years to receive a refund, even if they can meet the six month deadline, it is not surprising so many businesses are completely putting off making a claim at all. It comes down to a question of economics.

Virtually every EU country tries to introduce a way of solving the problem whenever it’s their turn at presidency in Brussels. But for every one solution there seems to be two more problems that crop up. The time delay in refunding VAT varying across member states alone ranges from one month to a year. Although member states are opening up to change it will still take many years for that change to happen if it does.

Many international firms simply don’t have the time to go through all their invoices where VAT has been charged. What a team from a cost optimisation consultancy like Lowendal UK can do is go through a company’s accounts to pinpoint exactly where they can get a return. For example, our first contract with the global communications firm mentioned earlier in this piece, ensured VAT managers estimated between US$300,000 to US$400,000 in recoverable VAT was found that would otherwise not have been using a previous tracking system.

One problem area that many businesses come up against is the language barrier. For many companies this is a significant issue for those dealing with VAT returns at the point of consumption, one of the advantages of employing a cost optimisation consultancy is that the language barrier is not an issue. Consultancy’s such as Lowendal UK use their own translators and so overcome the barrier which VAT managers often find is a bigger problem than dealing with different VAT rates across Europe.

Senior accountants we have dealt with and who have seen all industries affected by the current problems believe better education is a key factor in companies dealing with the complex EU VAT system with new legislation realistically a long way off.

Fortunately for companies looking to save huge sums of money, it’s at the top of Lowendal’s list of priorities and we’re only too happy to help your business.

Ann Jones is Managing Director of Lowendal UK, a cost optimisation consultancy based in Hemel Hempstead.