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How to turn VAT into cash for your business
Juraj Maholanyi and Sylvia Petkova of TMF Group explain how businesses can think ahead during the coronavirus pandemic to secure cash reserves and support their operations.

For a quick fix
Review domestic expenses
Business travel, subsistence and other
expenses incurred by staff can be recoverable. Many businesses think it is not
worth the hassle, but these costs do add up.
By reviewing and including what can be
recoverable across all jurisdictions where you may be incurring them, your
business is likely to either pay less tax or get a refund in the next month or
two, which no doubt will come in handy.
Review all importing documentation
If you were –
or are still – importing goods, ensure
you have all the relevant paperwork. Check that you are actively including all
eligible import transactions in your VAT returns to reduce your tax bill or get
a refund from the government.
Domestic and foreign tax/VAT credit status
Countries handle VAT credits differently.
Some have accounts where the credit sits, some allow businesses to carry
credits forward but many countries only refund VAT credits upon request.
It is essential to take the time to
investigate whether any input VAT credits are tied up in either a tax office
account or your VAT return.
You should also check for any VAT credit
applications in progress, as governments may be slower to process refunds. Ensure
you follow up with them regularly.
Longer term
Foreign VAT refunds
Check for any foreign expenses incurred
by your business, as these can add up significantly over the course of the year.
You may be able to get cash back in your bank account 3-5 months after
submitting a VAT reclaim.If
you act fast, you can have your 2019 refund in your bank account before the end
of 2020.
Import VAT relief
Investigate if countries you import
goods to allow businesses to defer import VAT at the point of entry. If you can
account for the import VAT in the VAT return instead, it results in zero cash
spent. At the same time there is no VAT refund to wait for so you don’t have to
worry about spending money and then waiting to get it back.
VAT bad debt relief
VAT bad debt relief allows companies to
recover the VAT paid to tax authorities when their customers did not pay them
pay in full, or at all.
Countries offering these schemes set
certain conditions for reclaiming the VAT, but if you can meet them, do apply
for this relief as it decreases your costs related to unpaid invoices.
Check for incorrect treatment of transactions by your suppliers
Companies frequently process supplier
invoices that are incorrect, which leads to an issue when a VAT credit is
requested. Tax authorities can reject an invoice on the basis that its
treatment is incorrect and state that the VAT on that invoice is not recoverable
from them, but from the supplier through a correction.
With many businesses struggling to
continue operating, making these checks can help ensure you capture any problem
transactions now, so you can ask for a credit from your supplier before it is too
late.
These conversations can go on for a
while, with suppliers reluctant to provide a credit. Starting early is key to getting
the cash as soon as possible.
Check local legislation for other opportunities
Investigate if countries where you
operate offer other options or simplifications that could benefit your business.
These can include:
- Cash
accounting schemes;
- Annual
accounting schemes;
- Group
registrations;
- Accelerated
refunds; and
- Other
country-specific relief.
All of the
above can significantly boost your business cash reserves and help you to repay
any COVID-19 government loans or schemes that you may have applied to.
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