£47K VAT Repayment

You are here:

How TaxGem Secured a £47K VAT Repayment for an Online Business

At TaxGem, we recently helped a client secure a £47,000 VAT repayment by untangling a technical VAT issue that had been overlooked for years. This success story highlights how complex VAT can be, especially for online businesses, and showcases our expertise in navigating these tricky areas.

The Client: A Growing Online Business

Our client, a well-known online fitness instructor with a significant Instagram following, offers digital products like fitness programs, 12-week challenges, live classes, and an online community. As her business grew, so did the complexity of her VAT situation. She came to us with an issue that many online business owners might face but may not even be aware of—how to correctly handle VAT on services sold internationally, digital or otherwise. 

The VAT Challenge: Complex Rules for Digital Services

If your business sells digital products or services—especially overseas—VAT can quickly become complicated. For businesses selling directly to consumers outside the UK, the VAT rules are different depending on where those customers are based. Each country has its own rules, and you may be legally required to register and collect VAT in multiple jurisdictions.

That sounds like a massive administrative headache, doesn’t it? The reality is, it is. Some accountants advise businesses to play it safe by collecting and paying VAT in the UK, even when it might not be required, just to avoid issues if HMRC opens an enquiry. But this is not the correct approach, and it can lead to overpaying VAT—something we uncovered in this case.

The Technical Issue: Missing a Key Element

When we onboarded this client, we dug into the details and quickly spotted a critical issue that had been missed. Our client’s digital product had a “live” element—her live yoga classes. This crucial aspect changed the VAT treatment entirely. The technical research was led by Steph Gemson, leading Chartered Tax Advisor, supported by Simona Aleknaite, who heads up TaxGem’s bookkeeping and VAT compliance team. 

For most digital products sold overseas, there is a requirement to charge VAT based on where the customer is located. But because our client’s product had a live component, this placed the sales “outside the scope of VAT.” In other words, VAT should not have been charged at all on those sales.

The Solution: Filing Amendments and Securing a £47K VAT Repayment

After conducting thorough technical research on the VAT treatment for live digital services, Simona amended the client’s historic VAT returns using VAT652 forms. This allowed us to correct the VAT treatment and reclaim overpaid VAT.

The result? A repayment of £47,000. This was not only a significant financial win for our client, but it also resolved a long-standing VAT issue that could have led to further complications down the road.

VAT Pitfalls: What Can Go Wrong?

This case highlights some of the common VAT pitfalls that online businesses, especially those selling digital products, need to be aware of:

Complex VAT Rules Across Jurisdictions: Selling directly to consumers outside the UK often means you need to register for VAT in multiple countries. This is both costly and time-consuming.

Overpaying VAT: Many businesses overpay VAT in the UK as a precaution, but this can lead to missed opportunities for VAT reclaims.

Live vs. Pre-recorded Services: The VAT treatment can vary depending on whether the service is live or pre-recorded, as we saw with our client. A subtle difference in your service offering can have a significant impact on VAT.

How TaxGem Can Help

VAT is complex, and the rules are constantly changing—especially for digital services sold internationally. At TaxGem, we specialise in understanding these nuances and ensuring our clients are compliant while also avoiding unnecessary costs. Our recent success in securing a £47,000 VAT repayment is just one example of how we go the extra mile to dig into the details and find the best solution for your business.

If you’re an online business owner and you’re unsure whether your VAT treatment is correct, it might be time for a review. We’re here to help, so get in touch with us at TaxGem for expert advice tailored to your business.