Key takeaways
- The UK standard VAT rate is 20%, with a 5% reduced rate and a 0% rate. See GOV.UK VAT rates.
- EU countries set their own rates, but the standard rate must be at least 15%, per the EU VAT Directive.
- Non-EU visitors can claim VAT back on goods taken out of the EU within 3 months. Great Britain ended VAT-free shopping for visitors in 2021.
- On a US return, VAT on a deductible business expense is part of that expense. It can’t be claimed as a foreign tax credit.
What is VAT?
VAT, or value added tax, is the main consumption tax in the UK, the EU and many other countries. Instead of charging tax once at the register, VAT is charged at every step: the supplier charges the manufacturer, the manufacturer charges the shop, the shop charges you. Each VAT-registered business reclaims the VAT it paid on its own purchases, so in the end the tax lands on the final buyer.
For a US traveler, that final buyer is you. VAT is almost always built into the shelf or menu price, so a £12 lunch in London already includes it. Rates vary by country:
Scan receipts and keep VAT records ready for reclaims with the Manage Receipt app.
- United Kingdom: 20% standard rate, 5% reduced rate for some items, and 0% for things like most food and children’s clothes.
- European Union: each country sets its own rates, but the standard rate must be at least 15%, with lower rates allowed for certain goods and services.
VAT vs sales tax
| VAT | US sales tax | |
|---|---|---|
| When it’s charged | At every stage of production and sale | Once, at the final retail sale |
| Set by | National governments | States and local governments |
| On the price tag | Usually included | Added at checkout |
| Shown on the receipt | Often, as the VAT included | Yes, as a separate line |
| Businesses get it back | Yes, if VAT-registered | No; they avoid it with resale certificates |
| Refund for foreign visitors | Sometimes, on exported goods | No |
VAT refunds for travelers
Because VAT is meant to tax consumption inside a country, goods that leave can sometimes be bought VAT-free. What you can get back depends on where you shop and what you buy.
In the EU. Visitors who live outside the EU can claim VAT back on goods they take home in their luggage. The European Commission’s VAT refund rules require proof that you live outside the EU, such as a US passport, and the goods must leave the EU within 3 months of purchase, with the paperwork stamped by customs. Each country sets a minimum purchase amount, and refund companies often take a fee. Hotels, meals and other services aren’t refunded this way, because you used them in the country.
In the UK. Great Britain (England, Scotland and Wales) ended VAT-free shopping for visitors from January 1, 2021. Shops can still sell VAT-free if they ship the goods straight to an address outside the UK.
For businesses. A US business that pays VAT on business costs in an EU country may be able to reclaim it through that country’s refund process for non-EU businesses. Conditions apply: you usually can’t be making sales in that country, some countries only refund businesses from countries that offer the same right in return, and some require a local tax representative. For a few hotel nights, the paperwork often costs more than the refund.
Recording VAT on expenses
For US tax purposes, VAT you pay on a business trip isn’t a separate deduction. It’s part of the cost of the hotel, meal or item, just like sales tax at home. It also isn’t a foreign income tax, so you can’t claim it as a foreign tax credit.
- Get a proper receiptAsk for an itemized VAT receipt or invoice showing the seller, date and VAT amount.
- Convert to dollarsRecord the full amount, VAT included, in USD at a consistent exchange rate.
- Note the VATKeep the VAT amount visible if you plan to claim a refund.
- Adjust for refundsIf you get VAT back later, reduce the expense by the refund.
A London hotel night costs £180, VAT included at 20%. The VAT inside that price is £180 ÷ 6 = £30, because 20% on top of £150 is £30.
At an example rate of $1.35 per pound, you record $243.00 as the lodging expense ($180 × 1.35), of which $40.50 is VAT. Since you can’t reclaim VAT on a hotel stay as a tourist, the full $243.00 is your lodging cost. Any foreign transaction fee your card adds is a separate line.
Foreign receipts, in dollars
Scan a receipt in pounds or euros and Manage Receipt reads the amount and converts it to dollars, so your trip report adds up in one currency. The original receipt with its VAT line stays attached, ready if you file a VAT refund claim or your accountant asks what the dollar figure is based on.
Explore Currency ConversionFrequently asked questions
Can US travelers get a VAT refund?
Often, for goods. In EU countries, visitors living outside the EU can reclaim VAT on purchases taken home within 3 months, if they meet the shop’s minimum and get the forms stamped by customs. Hotels and meals aren’t refunded. Great Britain stopped VAT-free shopping for visitors in 2021.
Is VAT deductible?
On a US return, VAT paid on a deductible business expense is part of that expense, so it’s included when you deduct the hotel, meal or item. It isn’t a separate deduction and doesn’t qualify for the foreign tax credit. VAT on personal purchases isn’t deductible.
Can my business reclaim VAT on a European trip?
Possibly. EU countries have a refund process for non-EU businesses that aren’t making sales there, but conditions vary, some limit refunds to countries that offer the same right in return, and some require a local representative. For small amounts, the fees and paperwork often outweigh the refund.
How do I calculate the VAT included in a price?
Divide the price by one plus the VAT rate, then subtract. At the UK’s 20% rate, that means the VAT is one-sixth of the total: a £120 bill includes £20 of VAT. Many VAT receipts show this amount for you on a separate line.