Why are input VAT claims rejected?

Despite best efforts, many organizations still succumb to the common pitfalls of domestic VAT recovery. Unfortunately, these errors are often only spotted once it’s too late and in the shape of a rejected VAT claim. So, what are the main reasons input VAT refunds are being rejected, and how can your business avoid them? 

Here’s the deal.

What happens if your input VAT gets rejected? 

No harm, no foul? Not quite. Despite the significant immediate financial loss that rejected VAT claims mean for a business, there are other consequences that can’t be ignored. Not only do rejected claims throw a spanner in the works when it comes to the immediate expected additional revenue, but they may add unnecessary administrative pressure on your team. This additional administrative burden is largely attributed to reviewing rejection notices, gathering additional supporting documentation, and potentially going through the appeals process. 

This further incapacitates the finance team, who are already stretched from dealing with other critical business objectives. 

In addition, despite losing the opportunity costs that a rejected VAT reclaim may hold, seeing as the expected cash-flow injection is on pause, in some jurisdictions, penalties or interest charges may apply if claims are rejected due to incorrect or late refund claims. 

Lastly, tax authorities aren’t all that thrilled about incorrect, non-compliant, or incomplete claims. Therefore, in order to avoid popping up as a red flag on your local tax authority’s radar or increasing the likelihood of a tax audit, it’s best recommended to mitigate any chance of rejected claims. This starts with understanding the common pitfalls when submitting your input VAT claims. 

Why are input VAT claims rejected? 

• Late submissions: All VAT returns are subject to country-specific return deadlines. Non-compliance with these deadlines often results in rejected claims. Managing deadlines proves to be particularly challenging when reclaiming your local VAT from multiple countries, where you are VAT registered. If a business overlooks the relevant submission deadline for a specific period of time, tax authorities may reject the claim. 
• Inaccurate of insufficient documentation: The entire VAT recovery process hinges on providing the correct invoicing and supporting documentation. Each business is responsible for maintaining correct supporting documentation in order to substantiate its claims. This can include anything from supplier invoices and receipts, import/export documentation, and other supporting documentation required by the relevant tax authority. However, here’s where it gets tricky - invoicing instructions and documentation requirements are country-specific, and businesses need to constantly check their compliance with local requirements. 
• Ineligible expenses: When it comes to recovering input VAT, it’s rarely a good idea to cast a wide net and see what you catch. If your return includes ineligible or nondeductible expenses, your claim will be rejected. Since there's no standardized VAT reclaim process, eligible expenses may vary depending on local VAT legislation. Therefore, it’s imperative that businesses have a firm grip and understanding of different types of expenses, and classifying them according to the correct VAT treatment per country-specific VAT rules and requirements is critical.

Ultimately, it’s important to note that each local jurisdiction has its own niche requirements. Therefore, to maximize your local  VAT reclaim yield, it’s best to tag a VAT expert into your corner to ensure you don’t leave anything up to chance. Fortunately, you’re already halfway there! The next step? Navigate your way to our Domestic VAT solution page to see how we can elevate your finance, maximize your savings, and help you dodge common input VAT refund errors in one fell swoop.