VAT – or Value Added Tax – is a tax payable on many goods and services in the UK. The rate at which VAT is charged depends on the category of goods or services. VAT is usually included in the advertised price of an item or service.
The Rates of VAT Charged in the UK
There are three different VAT rates in the UK:
The Standard Rate – most goods and services fall into this category. The standard rate is currently 20%.
The Reduced Rate – some goods and services carry a lower rate of VAT, these include domestic fuel and the installation of energy-saving measures such as insulation. The reduced VAT rate is 5%.
The Zero Rate – children’s clothes and many types of foods are amongst the products on which no VAT is charged.
Who May be Entitled to a Refund on UK VAT?
In general, foreign visitors will only be entitled to claim a VAT refund when they leave the UK if they live outside the European Union (EU) and if they are travelling to a country outside the EU with the goods. Residents of EU countries may also be entitled to a VAT refund if they are travelling from the UK to a country outside the EU and will remain outside of the EU for at least 12 months.
Goods and Services Purchased in the UK by Businesses
Foreign nationals who have bought items in the UK as a business may also be entitled to claim back VAT. In order to be eligible to claim back VAT a business must be registered outside the EU. VAT can only be claimed back on certain goods and services, and other eligibility criteria also apply.
Types of Goods on Which VAT May Not be Refunded
If an individual is entitled to claim back VAT they can generally claim it on most goods purchased in the UK. However, there are some exceptions. These include VAT charged on:
- Hotel bills;
- Goods which have been partly used or consumed whilst in the EU;
- Goods which are being exported from the UK as freight;
- Cars, whether new or second-hand. Different rules apply to the import and export of motor vehicles for personal use and a vehicle may be bought without paying VAT at all if it is to be taken out of the EU.
How to Claim a Refund on VAT When Leaving the UK
Claiming a refund on VAT is a multi-step process. It should be noted that retailers may not refund all of the VAT – some may be retained as an administration charge.
Firstly, any goods on which VAT is to be reclaimed must have been bought from a shop or retailer which takes part in the VAT Retail Export Scheme. A form must be filled in when the goods are purchased – this will either be Form VAT 407 or the shop’s own equivalent of this form. Alternatively the shop may provide a special VAT sales invoice. The purchaser will have to provide the shop with evidence that they are entitled to a VAT refund.
Secondly, the visitor will have to agree with the shop the method by which the VAT will be refunded. There are three options – not all of which may be available in every instance.
- Some shops will refund the visitor directly upon receipt of the VAT form once it has been approved by a customs official.
- Some shops will provide refunds via a dedicated refunds company.
- Some retailers may have a kiosk at the airport where refunds can be obtained as soon as the VAT refund form has been approved.
Finally, when the visitor leaves the UK they must show the completed VAT refund form, as well as the goods purchased, to the relevant customs official at their UK departure port. If leaving the EU via another EU country the goods and VAT form may have to be presented to a customs official in that country rather than the UK. The form must then be posted back to the shop or to the refund company, or taken to the refund booth at the airport according to the refund method being used.
If there is no customs official at the departure port there should be a telephone on which customs officials can be contacted or a special box where the refund form can be posted for consideration. In the latter case, a customs official should send the refund form to the shop or refunds company once it has been approved.