VAT Retail Export Scheme (Northern Ireland)

VATRESNI3600 - How the scheme works: Evidence to demonstrate the VAT refund

A further condition for zero-rating is that the VAT must be refunded to the traveller before the supply can be zero-rated in the trader’s VAT records.

The following paragraphs provide guidance on the evidence required in specific circumstances.

(a) Retailer administers refund

The retailer receives the stamped VAT refund document from their customer and must be able to produce records that show a refund has been made, such as be bank statements, credit card records, or other payment evidence. The supply can be zero-rated at the time payment of the refund is made to the customer.

(b) Refund company administers refunds on behalf of retailer – standard scheme

In these circumstances it is the retailer who zero-rates the supply, but the refund company actually refunds the VAT. The VAT 407(NI) form is stamped and returned to the refund company to arrange payment of the refund (unless the customer has already received a cash refund at departure – see VATRESNI 3400). The refund company issues a schedule to the retailer detailing each certified VAT refund document and a declaration that payment will be made to the traveller.

The retailer may zero-rate the supply when they have repaid the VAT detailed on the refund company’s schedule.

(c) Refund company operating the direct reclaim system

Under the direct reclaim system the retailer “sells” the goods to the Refund Company and accounts for output tax on the sale. The Refund Company acts as the retailer and must account for VAT on the sale until they receive a stamped VAT refund document and make the refund to the customer. Evidence of a refund, should follow the same principles as paragraph (a) above.

(d) Cash refunds

Cash refunds are made at the airport of departure direct to the visitor. The cash refund booth stamps the VAT refund document to confirm the refund and sends a statement to the refund company. Further evidence includes the customer’s signature which should match the signature on the VAT refund document. Cash refunds are only made when there is an arrangement between the refund company and the operator of the refund booth.

(e) Refunds by credit / debit card

Evidence for these transactions will come from bank statements provided by the retailer’s bank or merchant provider. Alternatively, these details may be available via secure websites. As these are provided by independent trusted third parties, they should normally be accepted on face value. However, if a large number of payments have all been made to the same card, or if they are refunded to a different card to the one given on the VAT refund document, this may be a sign that there has been artificial manipulation.

If it is impossible to refund a card (for example where the account has been closed, or  card details are illegible) zero rating is not allowed, and the refund amount must be written back in full to the retailer’s or refund company’s output tax. Officers should ensure that any write-back is for the original output tax and not the refund net of the administration fee.

(f) Refunds by cheque

Issuing a cheque counts as evidence that the refund has been made. However, if the cheque remains uncashed, the amount should be written back to the VAT account, as the retailer cannot show payment. Uncashed cheques are common for low-value refunds where bank fees exceed the refund value.

The practice of issuing numerous refunds by cheque, especially when many cheques remain uncashed, may be interpreted as an attempt to impede customers from receiving their refunds, thereby allowing the funds to be retained.

(g) In-store refunds

Some retailers take two card swipes, one for a VAT-exclusive amount and one for the VAT element. The VAT swipe is only completed if a stamped VAT refund document is not received within a period of 21 days. This process is known as a “downtown refund”. When a stamped VAT refund document is received, the retailer must retain details of the customer’s unprocessed card transaction as evidence that the VAT element was not charged, which serves as evidence of the refund.

(h) Down-town refunds

Procedures are the same as those for in-store refunds above. This refund arrangement is available via some large retail stores and a small number of bureaux de change.