VATRESNI6150 - Assurance at the retailer: Checks on retailer's procedures

Eligibility of traveller to use the scheme

Find out what procedures the retailer has in place to ensure that checks on eligibility are carried out and that the correct information is recorded.

The traveller must be asked to prove that they are eligible for the VAT retail export scheme. The traveller’s passport number, driving licence number or ID number must be shown on the VAT refund document along with information on the issuing office.

Credit cards issued in an overseas country are not acceptable as evidence of eligibility. Refund forms must not be completed if a customer cannot provide proof of eligibility – the fact that they may claim to have used the scheme in the past is not sufficient evidence to allow completion of a form.

The traveller must make the purchase in person – goods cannot be purchased on their behalf by a friend or relative. Check whether the retailer deals with visiting VIPs or their representative.

VAT not charged

Certain retailers, such as jewellers, operating very high margins on expensive goods, may charge a VAT-free price to the customer, and accept that if they do not receive the Customs certified VAT refund document, they will have to pay the VAT. A retailer without a certified refund document, who does not wish to invoice the customer for the VAT due on the selling price, must calculate the VAT payable by applying the VAT fraction to the actual selling price for the transaction in question.

There is a real risk that retailers who do not take a deposit of VAT will zero-rate the sales even when they do not hold VAT export evidence. It should be made clear that where evidence to zero-rate is not held by the end of the VAT period, the retailer must account for VAT on the consideration actually received.

Completion of a VAT refund document for retrospective purchases

VAT retail export scheme refund forms must normally be completed at the time of purchase. However, there is a concession to the normal rule which allows retailers to complete a refund form on production of receipts for purchases made over a period of time. The concession allows customers of some larger retailers to consolidate purchases from several different departments or branches onto a single VAT refund document. Use of the concession must be reviewed during routine VAT assurance visits. Failure to maintain sufficiently robust systems should result in the concession being withdrawn. In particular you must ensure that there are adequate procedures in place to confirm that: 

  • the purchases are genuine and cannot be used to obtain multiple VAT refund documents: for example, receipts are checked against sales records which are annotated to show a VAT refund document has been issued;
  • a refund for the goods has not already been made;
  • a refund form has not previously been issued for goods returned to the store with a request for money back;
  • all the purchases are within the time limit for exporting the goods – that is, 3 months from the end of the month in which the goods were purchased: purchases made outside the time limit from the date of purchase must not be included on the VAT refund document; and
  • receipts are stamped to show that the sale has been made under VAT retail export scheme e.g. VAT refund.

Refunds

Checks should be made on the procedure adopted by the retailer to adjust his VAT account where ‘down town refunds’ (see VATRESNI3400 for description) are voided or where refund cheques are not encashed by the traveller.

For details on how to complete Form VAT407(NI) see the Retailer’s checklist for purchases made after 1 January 2021 in Northern Ireland (VAT 407 notes).

Down town refunds

An extra swipe is taken of the credit/debit card to cover the VAT element of the purchase. This is processed where the certified VAT refund document is not received within 21 days. This process whilst popular with some retailers is risky as in the absence of a certified VAT refund document VAT is due on the VAT fraction of each payment.

Cheque refunds

Uncashed cheques are quite common. An overseas customer who receives a sterling cheque for a small amount may find that it is not worth cashing as the cost of clearance through foreign banks may exceed the value of the cheque.

Evidence that a refund has been made

You should check the retailer’s procedures, particularly those for dealing with uncashed cheque repayments by the traveller. The onus is on the retailer or refund company to provide sufficient evidence to prove that a refund has been made. You must be satisfied that the evidence available is sufficient and, if not convinced, you are entitled to ask the retailer or refund company to provide further information. Ultimately, zero- rating can be disallowed and an assessment issued for VAT on the sale. Guidance on acceptable evidence to show that a refund has been made is contained at VATRESNI3500.
 

Security

Retailers must ensure there is adequate security for stocks of blank VAT refund documents and sufficient control over the issue and completion of the forms.