Incorrectly booked VAT: how to detect it and reclaim it

VAT is a creeping loss type in accounts payable. The amounts per invoice are often small, the entries balance and the return is filed neatly. But anyone who systematically tests VAT coding over several years almost always finds deviations: VAT paid where it should have been reverse-charged, foreign VAT that could have been reclaimed through the refund procedure, or an incorrect rate copied straight from the invoice.

The four most common VAT errors

• Reverse-charge VAT paid anyway: the supplier wrongly invoices with VAT and your finance team books and pays it, for example for subcontracting or certain cross-border services.
• Foreign VAT not reclaimed: VAT on invoices from other EU countries can, under conditions, be reclaimed through the electronic refund procedure, but that requires action within the applicable deadlines.
• Wrong rate or wrong code: the VAT code is determined automatically by vendor rather than by the goods or service supplied, so deviating supplies are coded incorrectly.
• VAT on invoices from parties not liable for VAT, or on recharges that should not carry VAT.

How to detect deviations systematically

The effective approach is algorithmic: determine the expected VAT regime per supplier and per category of supply and test every booked invoice line against it. Deviations then surface automatically: a supplier who normally reverse-charges suddenly invoicing VAT, a domestic service with foreign VAT, a rate that does not fit the supply. This analysis runs on the same dataset as an accounts payable audit and is therefore almost always carried out at the same time.

Reclaiming and correcting

The correction route depends on the error. VAT invoiced in error is in principle reclaimed from the supplier, who issues a corrected invoice. Recoverable foreign VAT goes through the refund procedure, with strict deadlines per calendar year. Errors in your own return can be corrected within the applicable rules by filing a supplementary return. Important: VAT corrections touch on tax compliance. Always have the settlement checked by your tax adviser; this article is general information and not tax advice.

Prevention: three structural measures

• Link VAT coding to the supply rather than only to the vendor.
• Have a tax specialist periodically sample the VAT coding of new suppliers and unusual invoices.
• Make a VAT check a standard part of the annual review of the payment history.