How to Claim Unused Input Tax Credits

by Sue-Lynn Carty

An input tax is a value added tax (VAT) for goods and services bought or sold in European Union (EU) countries. This input tax applies to businesses not located within the EU that purchase goods or services, or sells goods or services within the EU. For instance, a U.S.-based company that purchases handbags from Italy, has to pay an input tax on those purchases.

Taxes Due on Sales

Determine if you have to calculate the amount of input taxes due before you can claim the input tax credit. First, determine the amount of input taxes you charged to customers from sales. Add this amount to the input taxes you must pay to Her Majesty's Revenue and Customs (HMRC) for proceeds made on non-customer sales, such as sales made to employees or the sale of business assets. You then have to subtract any credits the business received related to the customer and non-customer sales. This is the total VAT due which are the input taxes the company still owes that have not been paid.

Input Tax Credit on Purchases

The next step in claiming unused input tax credits is to determine your credit based on the purchases your business made. To determine this amount, add the VAT your business paid on imports from non-EU countries, the amount of VAT you owe but have not yet paid, and any VAT taxes your business paid to remove goods from a duty free zone or bonded warehouse. From this number, you subtract any VAT credits and any supplier accounts you have written off to a bad debt account as uncollectible. This is your total VAT credit.

Reclaimable Amounts

If your VAT credits exceed your total VAT due, subtract the total VAT due from your VAT credits. This is your reclaimable VAT tax credit. If your total tax due exceeds your total tax credits, you do not have a reclaimable input taxes and are not due a credit. In this case, you have to pay the HRMC the VAT owed. If the VAT credits equal the total VAT owed, you do not receive an input tax credit nor do you owe input taxes.

Forms and Deadlines

You must submit a VAT return online on the HMRC website. This requirement began on April 1, 2010. HMRC suggests that any business that still submits a paper return switch to the online submission format by April 1, 2012. The deadlines for submitting your VAT return varies depending on when your business accounting period ends. In general, the VAT filing deadline is five weeks after your accounting period ends. For example, if your accounting period ends on March 31, the deadline to file your VAT return is May 7.

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