VATRES3400 - Personal exports - retail exports: How the scheme works: Evidence to demonstrate the VAT refund

A further condition for zero-rating was introduced to address complaints from travellers who did not receive the VAT refund from the retailer. For sales made on or after 1 July 2003, 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 will receive the stamped VAT refund document direct from their customer, and must be able to produce records to show that a refund has been made. Such records will be bank statements, records of credit card repayments, manual or computerised record of payments. The supply can be zero-rated at the time payment of the refund is made to the customer. Further guidance on credit card and cheque repayments is provided in paragraphs (e) and (f) below.

(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 who actually makes the refund to the customer. The VAT 407 form will be stamped and returned to the refund company to arrange payment of the refund (if the customer has not already received a cash refund at their point of departure – see section below on cash refunds. The refund company issues a schedule to the retailer which includes details of each VAT refund document that has been stamped by Customs, and a declaration that payment will be made to the traveller.

The retailer can zero-rate the supply when he has 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 effectively acts as the retailer and must account for VAT on the sale until they receive a stamped VAT refund document and they make the refund to the customer. Evidence to show that payment of a refund has been made should be in accordance with paragraph (a) above.

(d) Cash refunds

Cash refunds are made at the airport of departure direct to the overseas visitor. The cash refund booth stamp the VAT refund document to show that a refund has been made and ends a statement to the refund company. Further evidence will be 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. Since they are provided by an independent trusted third party, 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.

There may be occasions when it is impossible to refund the card account, for example where the account has been closed, or the card number is illegible or incorrect. In these instances 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

Where a cheque has been issued, this is taken to be evidence that the refund has been made. However, if the cheque remains uncashed, there should be a write-back to the VAT account of the amount, as the retailer will not be able to meet the conditions of the scheme, since they have no evidence that payment has been made. Uncashed cheques are quite common as low- value cheques often cost more to clear through foreign banks than the value of the cheque.

Particular care should be taken where a large number of refunds are made by cheque, as the retailer may be deliberately making it hard for the customer to recover their money in order to keep the refunds.

(g) In-store refunds

Some retailers take two swipes of a customer’s credit card, one for a VAT-exclusive amount and one for the VAT element. The slip showing the VAT amount will only be processed if a stamped VAT refund document is not received within a period of 21 days. This arrangement is commonly referred to as a “downtown refund”. Where a stamped VAT refund document is received, the retailer must retain the customer’s unprocessed credit card slip as evidence that the VAT element has not been paid by the customer, and therefore a refund has effectively been made. Zero rating may be allowed on receipt of the VAT refund document stamped by Customs.

(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.