UK: 
USA:
Validating a single VAT registration number (VRNVAT Registration Number identifies a taxable business or non-taxable legal entity that is registered for VAT.) is the sort of task it can be easy to disregard as a tax professional.
After all, it’s so incredibly simple. You log on to the European Commission’s VAT Information Exchange System (VIES) – and since Brexit, the UK’s HMRCHis Majesty's Revenue and Customs is a non-ministerial department of the UK Government responsible for the collection of taxes. platform to check VRNs for British businesses – to enter the VRN of a new customer or supplier and are informed if it is valid or not.
But what if you need to check thousands of VRNs each day? And what happens if you get it wrong?
To further add to the complexity of the issue, there’s often ambiguity around whose responsibility within the business it should be to check VRNs. Should it be Procurement (often meaning it’s only checked once) or should it be down to the Transaction Processing team? Or perhaps you’re lucky enough to have a Master DataData about the business entities which provides context for business transactions. team? Maybe your Shared Service Centre allow for this to become a regular process?
That’s when checking VRNs changes from a menial task you’d rather forget into a business-critical process that has the potential to spell disaster for those who get it wrong.
Why is validating VRNs so important?
In short, because failing to check the validity of a VRN will cost your business money. That’s because you can only reclaim VAT on supplies if you have a VAT invoice from a supplier that contains a valid VRN (where the reverse chargeWhen the Reverse Charge (mechanism) is in effect, the recipient of goods or services assumes responsibility for reporting both the purchase and the supplier’s sale in their VAT return. mechanism applies, e.g. intra-EU).
The invoice must show a number of details alongside the VRN – including the business name and address, a unique invoice number and a description of the supplies – so make sure they’re all present on any invoice you receive, especially if reverse charges apply.
How often should you check VRNs?
I’m often asked about best practice for checking and validating VRNs. There is no one-size-fits-all solution. It’s important to be flexible in your approach and tailor your processes to your exact circumstances – including the size of your business, the number of transactions you complete, the urgency with which you require the reclaimed VAT and the manpower available to you.
As a general rule of thumb, I would recommend validating VRNs every time you add a new supplier or customer and thereafter every three months (once per business quarter).
EU tax reform and the growing importance of VRNs
In February 2020, the European Commission published its plan to introduce a Central Electronic System of Payment information (CESOP), which will come into effect on 1st January 2024.
The system will strengthen the ability of member states to fight VAT fraud by keeping records of all cross-border payment information within the EU, as well as payments to third countries or territories for a period of five years.
It will empower tax authorities across the EU to ensure VAT has been correctly fulfilled on all B2C supplies of goods and services, increasing the importance of businesses maintaining accurate data relating to VAT invoices.
As part of that, many industry insiders believe there will be a move to ensure the validity of all intra-EU reverse charges. While 2024 may still seem like a dot on the horizon, we know from experience (anyone remember HMRC’s MTD or UAE VAT?) that just over a couple of years is not a lot of time to ensure a business complies with new regulations.
How can businesses ensure accurate checks – especially when dealing with high volumes?
It’s clear that businesses dealing with thousands or even millions of transactions will not be able to rely on people to complete VRN checks; at least not with any degree of accuracy or certainty. You wouldn’t believe the amount of companies we’ve spoken to that have told us they hire interns to do this every summer.
Up until now, this has meant tax professionals (or interns) individually submitting checks through the EU’s VIES or making use of free online resources that allow for bulk validation. The problem with these is that the information validated is extremely limited and you still have to record proof of the VRN status for every single number (for audit purposes).
So while businesses have been legally required to ensure they only apply reverse charges with legitimate tax registrations, there have never been any definitive rules set on checking VRNs. As I say, this all looks set to change.
Before you know it, you’ll have to provide full audit traceability – probably in real time – and it’s not hard to imagine that the disruption to your business could be absolutely colossal.
DON’T PANIC!
There’s a newly-developed solution inbound – and it’s called LimeLyte® Entity Manager.
I’m not giving away too many details just yet, but let’s just say in a few weeks’ time all shall become very, very clear…
