Ask an expert: Recovery of UK VAT under the EU VAT refund mechanism

Question

My client is a Spanish contractor specialising in interior construction. It has won a contract to carry out a lengthy project to refurbish a large building located in London and owned by a UK-based property company. Although most of the construction materials are to be sent over from Spain the contractor still expects to pay a considerable amount of UK VAT on materials equipment hire and general expenses incurred in the UK. At the outset I suggested that the Spanish company register for VAT here so it could make straightforward and regular claims to recover this VAT on UK VAT returns. However HMRC has rejected our application saying that because my client’s customer the property owner is based in the UK and is VAT-registered then it must account for the VAT on the contract itself as a reverse charge....