12 Oct 2022
4 min read

Support spend optimisation with VAT recovery on business receipts

This article has been brought to you by our spend management editorial team.Payhawk Editorial Team
CFO taking advantage of Payhawk's OCR features to simplify VAT recovery on business receipts
Quick summary

The current economic, social, and political climate poses a great challenge for countries and companies worldwide. More than ever, businesses are asking how they can ride through turbulent times in order to close the last quarter of the year in a profitable, productive way.

The last quarter of the year comes with all the usual challenges of meeting yearly business objectives. But there's also the stress-inducing need to deal with escalating inflation, market constrictions, and an economy that has yet to recover to its pre-pandemic pace.

Working with 60dias

At Payhawk, we have a direct integration with VAT recovery company 60dias. This integration allows our customers across Europe to automatically recover VAT from all their expense receipts, which can help recoup some valuable funds.

We spoke with Sergio Pérez Vegas, technical managing partner (and tax inspector on leave specialising in VAT) at Spanish-based 60dias, about how to face these challenges while maintaining productivity and profitability. And now we're sharing some helpful tips to help organisations build cash, increase profitability, and weather today's tough economic environment.

HBR report: how to drive business strategy and growth

How do you suggest companies work towards spend optimisation even in the current challenging climate?

For all the reasons you mentioned, Europe's current economic situation is very delicate. A clear reflection of this is the parity with the dollar.

Our main recommendation is to optimise the largest number of processes you can to improve efficiency, so you can reduce costs without losing productivity.

We also suggest including the finance team in decision-making to make the most of their valuable insights. With the continued rise in production costs due to the increase in energy prices, material prices, and interest rates, having the oversight of your finance team can make a real difference. Give your finance team a more significant role in business strategy and decision-making; they can help save you money.

How can companies improve their profitability / generate liquidity?

One of the fastest ways to recover income is to claim back VAT on travel and entertainment expenses (T&E). By recovering the VAT on these expenses, you can make a much-needed injection of liquidity and increase the ROI of any trips or travel.

What impact can the recovery of deductible VAT have on a company's treasury?

The impact is immediate. Not only that, but the recovery of VAT can be retroactive for a period of up to four years in some cases. Meaning you can recover VAT on receipts from two years ago but feel the benefit before this year-end.

How much money can be saved or generated from VAT recovery?

We estimate that around 15% of the total expenditure on travel and entertainment can be recovered as deductible input VAT. Of course, this percentage varies slightly depending on the company's most common type of expense (e.g., restaurants, hotels, fuel, etc.). This can mean tens of thousands of annual recurring pounds for the company based on accurate receipt data capture and accurate reconciliation.

What is the average figure per employee that you estimate in recoverable VAT?

Based on our experience at 60dias, we're talking approx £100 per year per employee who travels regularly. Therefore, in the initial recovery (four years), you could be looking at recovering up to £500 per employee.

What percentage of VAT recovery from expense notes have you achieved in Spain and the European Union?

We have recovery averages of over 80% of the total recoverable VAT in Spain and the wider EU. Understandably this percentage will vary depending on the country and its own rules around tax. Specifically, in the case of Spain, where there are no major restrictions, it's common for the recovery to exceed 90%.

The main reason for the high success rate is our policy of processing 100% of expense receipts (regardless of their amount) and individually contacting each supplier to request the corresponding invoices.
The main reasons that prevent full recovery are 1) businesses that cease their activity and 2) the receipts are in poor condition with illegible information.

In which sector is it possible to recover the most money?

In Spain, you can get the most significant level of liquidity from activities that have a VAT of 21%. These include fuel, tolls, and parking payments, for example. Therefore, sectors such as pharmaceuticals, with sales teams that travel frequently, tend to recover higher amounts.

The rest of the EU depends on each specific country, its tax rates, and the limitations on deductibility.

At 60dias, you've detected that many companies aren't deducting VAT. What percentage of companies in Spain recover VAT today?

Large numbers of companies still don't recover their VAT from travel expense receipts and are therefore missing an easy way to bolster spend optimisation.

At 60dias, we've seen that about 50% of companies in Spain are still losing money, either because they only partially recover their VAT or because they don't recover it at all (in many cases, mistakenly thinking that they already are).

Internationally, the loss of efficiency is even more significant. This is due to a lack of knowledge about the recovery possibilities, national regulations, and mistrust due to the possible tax infractions.

Can companies complete this process independently, or do they require specialised support?

Yes, companies can carry out the process on their own, but there are two main reasons they don't:

  1. The volume of documentation to deal with: managing and contacting dozens, hundreds, or thousands of suppliers is unfeasible, unprofitable, and unproductive for most companies
  2. Tax insecurity: a fundamental part of the work involves knowing which expenses are or aren't deductible. This requires specialised personnel that many companies don't have. Therefore, it's better to have experts who can ensure that all formal and deductibility requirements are met

What role does technology play in the success of this VAT recovery process?

Tech is vital. Technology helps manage the volumes of daily documentation that we process at 60dias without losing speed in recovery. In addition, it allows us to provide our clients with personalised reports on their expenses and maintain the traceability of each ticket and invoice.

Why did you integrate with Payhawk? What do you think distinguishes Payhawk from other expense management solutions?

We understand that we need to offer a complete service without negatively affecting the client's activity. We don't want the client to have to dedicate extra resources to VAT; we only want to see their liquidity increase. Therefore, working with Payhawk is a natural fit since Payhawk provides a complete spend management solution so that all expenses are collected in one place and well preserved.

This way, we can download them automatically and quickly without intervention from the client. This is the most effective and efficient way to solve the problem of unclaimed VAT recovery.

How do you think 60dias and Payhawk complement each other for customers?

With the integration of both services, the client is offered an end-to-end solution with no extra effort; the result of the experience and vision of two experts working together.

Discover how Payhawk's direct integration with 60dias can help you recover the VAT from all your relevant receipts with no extra effort. Schedule a demo to learn more.

This article has been brought to you by our spend management editorial team.
Payhawk Editorial Team

The Payhawk Editorial Team consists seasoned finance professionals boasting years of experience in spend management, digital transformation, and the finance profession. We're dedicated to delivering insightful content to empower your financial journey.

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