For any businesses with a 31 December financial year end and partial VAT recovery entitlement, the deadline to review and adjust your VAT recovery rate is fast approaching i.e., the May/June 2022 VAT return period. Impacted businesses should start to look at their calculations now rather than leaving it to the last minute.
With Brexit having taken effect on 1 January 2021, we are seeing some clients, particularly in the financial services sector, obtaining a significant boost to their VAT recovery entitlement from 2021. This arises because supplies of financial services to the UK are now considered as being provided to a non-EU country and are qualifying activities for VAT recovery purposes. Depending on the extent of the uplift, it needs to be carefully managed with Revenue, as understandably Revenue will examine large VAT refund claims in detail.
A number of financial service providers calculate their VAT recovery position on a VAT period by period or month by month basis which aligns with business needs. While this is permissible, it should not be forgotten that VAT legislation requires these entities to still review their recovery position annually and to apply the recovery rate for the entire year to the VAT costs incurred during the year. Some entities mistakenly believe they don’t need to carry out an annual review where they are using a monthly / bi-monthly average recovery rate.
Carrying out your annual VAT recovery rate for 2021 could result in a positive cashflow impact particularly if your business provides financial services to UK customers, or if your business holds UK assets in certain circumstances (collective investment funds for example) however careful management is required.
We would be delighted to discuss your options with you and the best approach to take to claim any adjustment refunds so please get in touch.
Eamonn McCallion – firstname.lastname@example.org
Brian Keenan – email@example.com
Aideen Farrell – firstname.lastname@example.org