VATRESNI3200 - How the scheme works: The direct reclaim system

Some refund companies operate the VAT retail export scheme under the ‘direct reclaim system’. This system involves the following steps:

  1. The retailer contracts with a refund company, to sell it all goods sold to travellers, under the VAT Retail Export Scheme.
  2. The retailer checks that the traveller is an entitled customer, that the goods are eligible for sale under the scheme, and that they will be exported by the due date. The retailer also obtains evidence of the visitor’s destination. In practice the presumption will be that the goods moved to Great Britain unless the evidence shows otherwise.  If the destination is GB, or they will be travelling via GB, the retailer must explain the special rules and decide whether to continue with a VATRES sale.
  3. The traveller and retailer complete the refund company’s compliant variation of the VAT refund document. (For guidance on the invoicing requirements see VATRESNI3600). At this point the supply is taxable at the appropriate UK rate and VAT is charged.
  4. The retailer sells the goods to the refund company and accounts for the output VAT at the appropriate UK rate on this business-to-business sale made in the UK. The refund company recovers the VAT charged on the purchase from the retailer as its input VAT.
  5. The refund company simultaneously sells the goods to the travellers. At this point the supply is taxable at the appropriate UK rate, VAT has been charged, and output VAT is accounted for by the refund company.
  6. At the final exit point (from Northern Ireland or the EU) the traveller presents the goods and VAT refund documentation to a Customs officer, or alternatively deposits the document in a designated drop box.
  7. Upon verification, Customs certifies the VAT refund document and hands it to the traveller, who is responsible for mailing the form to the refund company using the envelope provided.
  8. Where a drop box is utilised, Customs will forward the certified document directly to the refund company using the supplied envelope.
  9. Upon receipt of the certified document the refund company processes the VAT refund to the traveller.
  10. If the traveller's destination was Great Britain, the refund company accounts for the import VAT due, which offsets the VAT refund and means that payment will not actually be made.
  11. After refunding the VAT, the refund company's output tax may be adjusted to zero-rate the exported goods.
  12. the output tax may be adjusted to zero-rate the goods exported. If the visitor’s destination was Great Britain, the refund company must make the necessary adjustment in their records to account for the import VAT due and no refund will be made.

Please note that travellers are responsible for ensuring the following:

  • The VAT refund document is submitted to Customs for verification, with the certified form subsequently returned to the refund company; or
  • The document is placed in a drop box for certification, with an appropriately addressed envelope to facilitate its return by Customs if required.