Value-Added Tax rates matter, even if you're getting a refund.
In early January, the Value Added Tax in the United Kingdom rose to its highest level ever, from 17.5 percent to 20 percent. The U.K.’s Coalition Government expects the increase to add £13 billion in revenue to help cut down the country's budget deficit.
Observers believe the VAT increase will have a negative impact on inbound leisure travel. But what about for meetings and conferences? Because much of VAT paid on meeting expenditures is refundable, and you’re a planner working with a VAT recovery firm, does the rate increase really rate matter? We asked some of our usual experts. Here’s what they had to say:
“It matters,” says Nancy Eide, principal, CEI VAT Reclaim, “because you can’t get 100 percent of your VAT back in any case, and now the VAT is 2.5 percent higher on everything. Not every expense item has reclaimable VAT and a fee has to be paid to a reclaim service based on the amount of VAT recovered. So your VAT refund will be less than the total VAT you paid.” There’s a potential silver lining, however, with U.S. dollar strengthening against the British Pound. “I don't think the VAT rate impacts planners' decisions as much as the cost of currency,” she says.
Leigh Wintz, CAE, executive director, Soroptimist International of the Americas, agrees that the increase matters. “If you are going to get it back anyway, it might not seem like such a concern,” she says. “However, many of us don’t budget a refund. Sometimes you can’t get it all back, it takes a long time, etc. I believe that any refund is best treated as a windfall. But now you are talking serious money.”
In Carol Krugman’s view, “It depends.” Krugman, CMP, CMM, director, meeting and business event management, at the Metropolitan State College of Denver, says it all comes down to whether or not you have a choice of destination. “Americans planning to travel or organize meetings in the U.K. know from the outset that it is going to be an expensive venture, so there is usually a compelling reason to choose it as one’s meeting destination. Now it will just be more expensive. If there is no other choice of destination, they will bear the increased cost.”
Organizations on tight budgets that are facing the additional tax burden, she advises, would do well to perform “a review and re-prioritization of expenses. Confirm ‘must have’ and ‘would like to have’ budget items, and start eliminating what is not absolutely necessary. This will have a direct effect on your planning, as it will require even more creativity and ingenuity to provide a commensurate experience for attendees with fewer resources.”
And, being an optimist, Krugman suggests the VAT increase could be a nonissue if the U.K. ever “follows countries like Mexico and Chile, which exempt VAT charges on many conference-related expenses for foreign groups. Hope springs eternal!”
For a continually updated list of VAT changes worldwide, as well as a chart of tax rates in 20 countries around the world and which business expenses are eligible for VAT refunds for U.S. companies meeting in those countries, visit taxback.com.