What is value added tax (VAT)?
VAT stands for value added tax. It is a 20% sales tax levied on most goods and services except postage stamps, financial transactions and property transactions. It is a tax charged by the seller to consumers and businesses that other VAT-registered businesses can reclaim from HMRC.
VAT registration numbers
A VAT-registered number is a unique identification issued to businesses that are registered to pay VAT. Businesses can find their VAT number on their VAT registration certificate issued by HMRC.
Searching for UK and EU VAT numbers
What is a VAT number?
A UK VAT number is nine (9) digits long, with two letters at the front indicating the country code of the registered business. For example, for Great Britain (UK), the first two digits of the VAT code are GB. EU (European Union) VAT numbers consist of 15 digits-long alphanumeric characters, with the first two letters indicating the country of the registered business. For example, for Denmark, the first two digits of the VAT code are DK. All the countries in the EU with the two letter country codes are:
- AT - Austria - 9 characters always starting with a U.
- BE - Belgium - 10 characters (9 prior to April 2005).
- BG - Bulgaria - 9 or 10 characters.
- CY - Cyprus - 9 characters - last character always a letter.
- CZ - Czech Republic - 8, 9 or 10 characters.
- DE - Germany - 9 characters.
- DK - Denmark - 8 characters.
- EE - Estonia - 9 characters.
- EL - Greece - 9 characters.
- ES - Spain - 9 characters.
- FI - Finland - 8 characters.
- FR - France - 11 characters.
- GB - United Kingdom.
- HU - Hungary - 8 characters.
- IE - Ireland - 8 characters.
- IT - Italy - 11 characters.
- LT - Lithuania - 9 or 12 characters.
- LU - Luxembourg - 8 characters.
- LV - Latvia - 11 characters.
- MT - Malta - 8 characters.
- NL - The Netherlands - 12 characters with the 10th character always a B.
- PL - Poland - 10 characters.
- PT - Portugal - 9 characters.
- RO - Romania - between 2 and 12 characters.
- SE - Sweden - 12 characters.
- SI - Slovenia - 8 characters.
- SK - Slovakia - 10 characters.
How to check if a UK VAT number is correct?
A UK VAT number is not a ‘random’ set of numbers - there is a formula that allows you to identify whether the VAT number is valid or not. If the VAT number is not valid, then a business cannot reclaim the VAT from purchases made.
The following steps should be undertaken to identify whether the VAT number is correct or not:
- List the VAT number vertically excluding the first two letters (i.e. country code).
- Then multiply each subsequent value of the VAT registered number starting with 8 and descending to 2.
- Add up all the values obtained after multiplying each value of the VAT number.
- Finally, deduct 97 from the sum until the answer becomes negative. The negative value obtained must match the last 2 digits of the VAT number. If the negative value does not match the last 2 digits, the VAT number is considered as invalid.
For example – the VAT number for Deutsche bank AG London is GB 243609761
- 2 x 8 = 16
- 4 x 7 = 28
- 3 x 6 = 18
- 6 x 5 = 30
- 0 x 4 = 00
- 9 x 3 = 27
- 7 x 2 = 14
The total of the above calculation is 16+28+18+30+00+27+14=133. Subtract 97 until the figure becomes negative and the result is 133-97-97=-61 which matches the last two digits of the VAT number. It means the VAT number is valid.
Why it’s important to check a VAT registration number?
If you have just started dealing with a new customer or a supplier and you want to check whether the VAT registration number provided by them is valid or not, you can do so in the following two ways –
- Call the HMRC VAT helpline – You can call the HMRC VAT helpline number on 03002003700 between 8am to 6pm during the week. You can only check the VAT number for UK registered businesses.
- Use the online VAT information exchange system (VIES) – With the help of the VAT information exchange system (VIES), you can check the validity of a VAT-registered number for any business registered in the European Union (EU). The VIES service was established to address the growing threat of fraud. You can also validate a VAT number by accessing the European commission VIES website. You must simply select the country where the business is situated and then enter the registration number you want to check. The website will show you whether the number is valid or not. If it is valid, the VIES website will confirm it and share the name and registered office of the business.
Keep a copy of your search
After checking the validity of the VAT number, you should save or print out the results of the search. If you are asked any questions by HMRC in the future, you can show the proof that the number was valid at the time of your search.
What to do if a VAT registration number is not valid?
If the VIES website shows the VAT number is invalid, you must contact your customer or supplier to cross-check whether the VAT number provided by them is right or wrong. If cross checking the VAT number twice, still shows the same result i.e. invalid VAT number, you should inform them that the VIES system is reporting the number as invalid. In this case, the company will contact HMRC to ask whether the VAT number inputted in the VAT information exchange system is correct or not.
How to reclaim VAT?
You can only reclaim VAT if you have a valid VAT invoice from a supplier. A valid VAT invoice must include the following –
- A unique invoice number
- Business name & address
- VAT registration number
- Description of the goods & services
- The date
All these details must be mentioned on the invoice before you try to reclaim the VAT. You must ensure the VAT number is valid when you are reclaiming a large amount of VAT. If you don’t follow HMRC rules, it can refuse your request to reclaim the VAT.
For see how Nomisma handles VAT visit https://www.nomisma.co.uk/