Industry insights: How to claim VAT in Engineering
Figuring out how to claim VAT in the engineering industry can feel like a full-time job - but it doesn’t have to be yours. Swop headaches and heavy lifting for effortless, maximized and compliant VAT recovery engineered for success.
VAT recovery is no walk in the park, especially if the responsibility lies solely with your finance department. As a matter of fact, manual VAT recovery processes have received such a bad reputation for their complexity and time consumption that many businesses don't see the benefit of VAT recovery if it comes at the cost of valuable resources with little yield to show for it.
Tip one? Stop settling for resource-intensive, sub-par VAT recovery processes. Here's how to recover VAT as an engineering business without compromising your time, people or money. But first, let's do a quick refresher to see if it's worthwhile in the first place. Spoiler alert: It's worth it.
Who can recover VAT in the engineering industry?
Raise your hand if you're an engineering firm that has local or international expenses. If that's the case - the chances are pretty significant that you have VAT potential waiting to be uncovered (and recovered). Value-added tax is applied at almost every stage of the manufacturing and supply chain, and in most cases, businesses are entitled to recover the VAT charged by their suppliers. To help you gauge your own VAT potential, ask yourself the following questions:
✅ Do you deal with local suppliers?
✅ Do you deal with foreign suppliers?
✅ Do you have employees travelling locally for business?
✅ Does your company take part in international trade shows?
✅ Do you feel your local VAT processes could be streamlined?
✅ Do you incur foreign employee Travel & Entertainment (T&E) costs?
<<domestic VAT solution>>
<<foreign VAT solution>>
Recoverable costs in engineering
If you answered ‘yes’ to the questions above, there may be a variety of significant high-value costs associated with your business that could be eligible for VAT recovery. However, it’s not as straightforward as most would like it to be, especially considering the engineering industry’s complex global supply chains and ever-changing VAT legislation. But here’s the thing: in a competitive market, no business can afford to watch millions of euros effortlessly slip through the cracks each year. Even if, by some chance, it doesn’t bother them, it could potentially leave businesses prone to non-compliance risk.
So, what high-value costs are we looking at here? Within the foreign VAT recovery scope, engineering firms can potentially recover VAT on tooling costs, licensing & permit fees, and cross-border supply & installation costs.
For example, tooling costs include fixtures, cutting equipment, and patterns. Often, the tooling supplies are located in the supplier country. However, as the engineering entity may constitute the owner, the VAT incurred on the purchase of tooling parts may be eligible for VAT recovery - cutting tooling expenses by up to 27%.
For more information on what your engineering firm can reclaim, read our guide to VAT in engineering here.
What are your potential red flags?
Once you’ve established that your business may have way more VAT potential and opportunities than you may have realized, it’s time to fine-tune your processes and identify any potential red flags that may hinder the process. One of the two most common challenges of claiming VAT include:
A lack of resources to review and assess high-volume invoices
Lack of knowledge of eligible expenses
Incorrect invoicing instructions
Amendments to legislation across the industry VAT scope
These challenges are tricky to navigate without the needed guidance and can impact your VAT recovery potential. So, this leads us to our final thought: how can your business reap the rewards of your VAT potential without getting caught up in the common challenges and pitfalls of VAT recovery processes?
VAT recovery that’s engineered for success
Ultimately, recovering VAT shouldn’t come at the cost of critical time, resources or peace of mind. We help engineering firms replace the redundancy of manual VAT recovery with VAT IT’s centralized solution.
Swop headaches and heavy lifting for effortless, maximized and compliant VAT recovery engineered for success.