Except for micro-enterprises and self-entrepreneurs, all companies have obligations to respect in terms of VAT Registration and many business creators are wondering about the operation of VAT.
General operation after VAT Registration
Over a given period (determined with the VAT system, which we will discuss later), a company collects VAT from its customers on all the sales or services it carries out and pays VAT to its suppliers on all the purchases and overheads it incurs.
The VAT paid to suppliers is called “deductible VAT”.
At the end of this period, the company can be in one of three situations:
· The VAT that it has collected from its customers is higher than the VAT that it has advanced to its 0 suppliers: in this case, the company must return to the tax department the excess VAT,
· the VAT advanced to the suppliers is higher than the VAT collected from its customers: in this case, the company benefits from a VAT credit which can be refunded under certain conditions or charged to the next excess of VAT,
· The VAT collected from customers is equal to the VAT advanced to the supplier: in this case, there is no surplus or credit.
So there is no impact on the company: VAT is neutral. On the other hand, it can generate cash offsets.
Details on the operation of VAT
- VAT regimes
Depending on its size, the company is placed under a VAT system which determines, in particular, the periodicity to be respected for the declarations and the payments of VAT with the tax service.
It is always possible to opt for the higher VAT system, that is to say, provided for companies reaching the thresholds above those that concern you.
For more information, one of our articles discusses this point: the VAT regimes.
- Did VAT collect on debits or receipts?
At the end of each period, the company declares the VAT it has collected from its customers. Two devices exist:
· The VAT collected on flows: the company must account for VAT by retaining as the operative date of invoice (in most cases), it is essentially companies with a sales activity,
· The VAT collected on receipts: the company must declare the VAT by retaining as a generator the date of collection, it is, in particular, the service companies.
Note: VAT on payments is more advantageous in terms of cash flow because you declare VAT (and therefore pay any VAT excess tax) from the moment the customer has paid you.
At the end of the financial year: if you are in VAT collected on debits, the VAT balance collected is normally at zero at the end of the accounting year and if you are in VAT collected on the receipts, the balance corresponds to VAT on trade receivables not settled at the balance sheet date.
- Recoverable VAT on debits or disbursements?
The principle is the same as above; two situations must be distinguished at the level of recovery of VAT:
· First, there is the deductible VAT on debits: we keep the invoice date to determine the period, over which the VAT is recoverable,
· And then the deductible VAT on disbursements: the payment date of the supplier is used to determine the period over which the VAT is recoverable.
At the end of the financial year: the VAT balance deductible in the accounts corresponds to the VAT relating to expenses not paid on the closing date with your suppliers who charge VAT collected on the receipts.
- Details on deductible VAT
It is not because the company pays VAT on a purchase or on fees that it can automatically recover it.
Indeed, certain expenses do not allow recovering the VAT which strikes them. This is, for example, the case:
· VAT on fuel costs for passenger cars: if it is gasoline, all VAT is not recoverable and if it is diesel, we can recover only 80% of the deductible VAT,
· VAT on the acquisition of a passenger vehicle,
· VAT on hotel expenses incurred by company managers.