In this blog article, we take you step by step through everything you need to know about VAT deduction. So you stay up to date and save a penny by recovering that vAT. Deducting VAT, that’s win-win, right?
What exactly is vAT deduction? 🔎
Before we zoom in on the details, it is important to understand the core of VAT deduction. As a VAT subject to VAT, you charge VAT on the invoices you send to customers. But fortunately, you don’t have to pass that full vAT on to the government.
Why not? Well, you can deduct the VAT you paid yourself on purchases (such as materials, services or other business expenses) from the VAT charged on your sales invoices. This process is called ‘VAT deduction’ and ensures that VAT is not an extra cost for you as a business owner. Handy, right? 🤝
The right to vAT deduction: for whom?
Not everyone has the right to deduct vAT. This privilege is reserved for an entrepreneur subject to VAT. Private persons, VAT exempted (turnover below EUR 25,000 on an annual basis) or professions not subject to VAT (art 44) do not have this right and must pay the VAT in full, without being able to recover it. For them, vAT is indeed an additional cost.
Do you want to become subject to VAT?
Then be sure to view our article on what you need to do to switch from exempted from VAT to subject to VAT.
How to calculate vAT deduction? An example
Say you provide a service for €1,000 excl. VAT. You charge 21% VAT here, which gives a total amount of €1,210 for your customer. But you also incurred costs, for example €500 for materials on which you paid €105 vAT.
In this case, you may deduct that €105 VAT from the €210 VAT you received on services. So you only deposit €105 to the VAT administration. 💸
You have to repeat this process every period (usually quarters) via a vAT declaration. The balance remaining after deduction, you pass on. Is the balance negative? Then you get the difference paid back. Handy, right?
Tip
Want more information on vAT declarations?
Then be sure to view our blog article on how to file a vAT declaration!
And what do you need to recover vAT on an expense?
Definitely already an invoice. Not a ticket, not a cash receipt, not a statement of expenditure … Effectively an invoice and it already states at least the word ‘Invoice’ on it.
In addition, your own vAT number must also appear on the invoice. So your supplier must state your vAT number on the invoice, otherwise you cannot recover VAT!
Tip
Before deducting VAT from expenses, it is important to
- Have an invoice that meets all the requirements
- Recordthe professional use of the expenses.
- Check the expenses from which you can deduct limited VAT (see below).
VAT deduction for cars and other expenses
Besides goods and services directly related to your business, there are also an amount of typical expenses on which you are (limitedly) entitled to deduct VAT:
Car costs 🚗
For the car you use for your company, you may deduct some of the vAT on the purchase, fuel and maintenance costs. The exact deduction percentages depend on the type of car and how much you use the vehicle for business purposes.
But as a rule of thumb, you can take that the recoverable VAT on passenger cars is at a maximum of 35%, unless your professional use % is lower than 35%.
Restaurant costs and staff party 🍽️🍾
Do you go out to dinner with customers? Then you may never deduct VAT from these restaurant costs.
Are you organising a staff party? Then you may deduct the vAT, but there are conditions.
Mobile phone & internet costs 📱
For your mobile phone subscription and internet connection at home, you may also deduct the vAT for the part you use it for your business. The same applies to the purchase of tablets, laptops and other IT supplies.
Business gifts 🎁
Small gifts for customers or collaborators also fall under vAT deductible expenses, subject to some conditions. For more info, be sure to view our article on the deductibility of business gifts in accounting.
Company bicycle 🚲
Do you use a bicycle to carry out your self-employed activities? Great idea, because you can fully deduct the vAT on the purchase and maintenance costs of such a bike (up to the maximum professional use, of course).
So there are lots of opportunities to deduct vAT, including on typical business expenses. It’s just a matter from keeping track of and accounting for everything correctly.
Practical tips for a smooth vAT deduction
By now, you surely understand how VAT deduction works. But how do you make sure this process runs as smoothly as possible? With these handy tips, you’ll already be on the right track:
- 💼 Keep track of all invoices: Both your incoming and outgoing vAT flows should be documented. Here we are talking about invoices that state your vAT number! Keep all relevant documents!
- 🗓️ Respect the vAT return deadlines: Submit your vAT declarations on time, otherwise you risk fines. Put the deadlines in your diary right away! Psst…. Dexxter will automatically let you know when a deadline is coming up!
- 🖥️ Use an accounting software: With software like Dexxter, it’s easy to stay on top of your vAT situation and file declarations at lightning speed.
- 💬 Get advice: Do you have questions specifically about VAT deductions for your situation? Don’t hesitate to ask a question in our learning center or to our customer support!
