Have you issued an invoice that is not paid because your customer cannot or will not pay? And have you also already passed on the vAT to the government because the invoice applied to a previous quarter? It can happen to everyone, luckily there is such a thing as ‘vAT rectification’.
In this blog article, you will learn step by step how to go about it. We discuss the conditions, the different scenarios and give you practical tips to successfully go through the recovery process.
What exactly does vAT straightening entail?
Let’s explain the basics. As an entrepreneur subject to VAT, each quarter you pass on the VAT you have charged on your sales invoices. The VAT on that sales invoice then stands in your bank account for a while, until you have to pass it on to the VAT authorities.
Suppose a customer does not pay such an invoice, then you have wrongly passed on the VAT. In that case, you may correct that vAT with regard to VAT administration.
It sounds logical, but in practice the tax authorities set quite strict conditions. We go through them for you below.
Basic conditions for correcting VAT
To offset that paid vAT, you have to meet two important conditions:
Firstly, clearly inform the customer that they have to pay 👊. This can include clear payment terms on your invoices, sending several payment reminders, reminders by registered letter, using a collection agency, etc.
In other words, you need to be able to prove that you really did your utmost to collect that money. So collect all communications surrounding the unpaid invoices.
In addition, it must be 100% certain that the invoice remains definitively unpaid 🚫.In other words, there is no longer any doubt that you will ever receive that money from your customer again. We give some typical scenarios below.
Do you meet these two conditions?
Then you can reclaim the vAT on those unpaid invoices from the tax authorities. Below we explain exactly how to do this..
Scenario1️⃣: Your customer is bankrupt
The court has ruled that your customer is protected from creditors like yourself. Which means you are (probably) never going to get the money back from this customer.
You can apply to the curator for a certificate confirming that the claim is definitively uncollectible. That is the proof that you can reclaim the vAT.
Scenario2️⃣: Your customer does not want to pay
In this case, it is more difficult to prove that the claim is definitively irrecoverable. After all, your customer is not bankrupt, but simply refuses to pay your invoices.
Perhaps he is not satisfied with your work? Or is he in financial trouble? Whatever the reason, you need to be able to prove that:
- You really did everything you could to collect your money (see condition 1)
- It has been definitively established that the customer will never pay again
For that second point, you collect all relevant communications:
- Mails and registered mail with payment reminders
- Any notices of default from a lawyer
- A dossier from a collection agency labelling the claim as ‘irrecoverable’
Still haven’t heard anything from your customer after some time? If so, that in itself is not sufficient proof. The tax authorities really want to see hard evidence that the claim has been definitively written down. The confirmation from the collection agency (point 3 above) is very strong evidence of this.
Next steps
1️⃣ Get rid of VAT stress thanks to Dexxter
2️⃣ Prepare a credit note, click here for more info.
3️⃣ File a VAT return, with Dexxter having automatically processed the credit note.
