a question with regard to the VAT return in The Netherlands - report.
Awesome you guys built in this function. Very helpful, thanks for that!
I have an important question though. In my business, part of my income is based on activities where I have to add 21% VAT to the invoice (training programs for companies I provide), and for part of my activities I don’t have to do so (due to the fact goverment decided these activities are VAT-free activities, in my case specificaly: psychological treatment). So far so good, nothing complicated.
The complexity starts when it comes to the costs I have to make for my company. The VAT I pay on expenditures for my company, I can deduct from the VAT I have to pay. However, I can only deduct the VAT I paid for expenditures that are related to my VAT-charged activities (let’s say costs I make for a website for my training programs) but not for the ones that are related to the VAT-free activities (let’s say the costs for the website that is related to the psychological treatment). It becomes even more complicated, because as you can imagine, many costs I make are meant for both branches of the tree (for instance office space, in which I perform both my training programs AND the psychological treatment). This means I need to be able to create some kind of a splitting in my expenditure list, where I can say about each expenditure if it’s related to 1) a VAT-charged activity, 2) a VAT-free activity or 3) a mixed VAT-free and VAT-charged activity and what the proportion of both is for this expenditure.
Is there any solution to this problem in the program?
You will simply need to create duplicate expense accounts for the activities subject to VAT and not subject to VAT. For convenience, they should have similar names. In the chart of accounts, you can group them under VAT and Non-VAT headings. When you pay something like rent, you will have to manually allocate the payment to separate accounts on two separate lines. Of course, you will select tax codes as appropriate.
An alternate to duplicate expense accounts which can make the P&L very odd looking, you could try using tracking codes to separate Vat Training v’s Non-Vat training.
While I understand the charging or non charging of vat based on course type delivered, but does it extend to the related expenses to the extent you say - which leads to very “arbitrary” determinations.
Take your monthly rent (paid in advance) - one month the courses delivered are equal for each type, the next month only the training course is delivered. So based on your comments above, the first month only 50% vat is claimable and the next month 100% is claimable. To this add electricity etc. For items like office supplies, how do you allocate in advance their potential usage.
Then there is the profitability of the courses. For the training you charge 1000 + Vat for the day and all direct expenses (say 300) get vat rebated @ 21% (52). For the other course you charge 1000 (no vat) and all direct expenses (say 300) receive no vat rebate. A disincentive.
I would ask further, but perhaps very identifiable direct costs, rather then arbitrary variable costs only need to be considered - otherwise I can see the calculator being heavily weighted towards the vat claimable side.
@ Brucanna: yeah it’s hard to know in advance how much income I will generate on each branch, and so how to divide the costs. I think I have to calculate for some costs in hindsight which proportion of my income both generated, and use that ratio to determine how to divide the costs over both branches. Not sure exactly how to solve that right now. I wasn’t planning on dividing my monthly costs like rent, depending on how much activities I spent that specific month. That really is too much hassle. I think this is typically a cost I will look at at the end of the 3 month period or the end of the year to determine how to divide the costs.
@ Tut & Brucanna: Both options you guys offer sound helpful, either creating two expenditure accounts or using tracking codes (like ‘labels’ I guess, right?). The important question is, how do I do this within Manager.io? Haven’t found the button for it.
With regards to the VAT, another option is two split the training into two separate businesses.
The training business would incur all the claimable vat costs, especially those required to be in a business name, rent, electricity etc. Then the second business would pay a facility fee based on a hour/day schedule. Similar to a doctor using a medical centre room on an ad hoc basis - a fee would cover rent. electricity, phones, receptionist etc .
The training business would charge and pay vat on the facility fee income, but the second business wouldn’t claim a deduction. This model “could” also work within the one business as you would be paying vat on the facility fee income which would be a substitute for not claiming vat on a proportion of the expenses - if you get what I mean.
The fee could be calculated based on various recoverable costs - eg rent
Monthly x 12 mths / 52 wks / 5 days / 8 hrs = hourly amount , add 20% loading to recover variables - if those variables = 20 % of your total expenses
I am afraid I lost you here Brucanna. I found the tracking code option, and found how to apply different codes to the purchase invoices. But not how to take it from there to get a periodical overview of the VAT I have to pay, split out to the different codes.
With regard to different businesses, that sounds like a bit of a stretch. In the end, I want to have all my costs, income and VAT in one overview. If I have to work with seperate businesses, to me that would complicate stuff I’m afraid.
With regard to your option Tut, how do I create duplicate expense accounts? I tried working with the purchase invoice items but that doesn’t seem to do the trick…
Got to Settings => Chart of Accounts and, on the Profit and Loss side, click New Account:
For every expense account where you want to split expenses recorded between VAT and non-VAT, such as Rent, create a new account with a name like Non-VAT Rent. Then, when entering the expenditure, divide the amount in whatever manner you think is appropriate. On one line item, allocate the VAT portion and on another the non-VAT portion.
Let me add a word of caution here. I have no knowledge of VAT regulations in your country, and I am not saying this approach is the best, or advisable, or even necessary. I am only telling you how you could set things up to record expenses in parallel accounts. There are several experienced Manager users in the Netherlands who may have experience with your situation. Perhaps some of them could add comments on how they handle it.
@RS81
First of all, I’m a fellow Dutchman. On the internetsite of the Dutch Tax Administration, you can find the rules about reclaimable VAT in case you have Vat-0% turnover, and 21% turnover. In case you have expenses which are for 100% for the 0%-business, you’re not allowed to reclaim the VAT-paid. In case you have expenses for the 100% Vat-business, you can reclaim the VAT paid for the full 100% In case you have expenses for the mixed business like rent, you have to split the VAT-paid based upon the turnover you have for both kind of businesses. Say 70% is VAT-taxed-turnover and 30% is non-taxed turnover there you are allowed to reclaim 70% of the VAT-paid for mixed expenses. In case you fill in your VAT-tax return form once a quarter, you have to make that calculation every quarter.
A work-around could be that you manually calculate the VAT-paid for the mixed business and make a journal entry on the VAT-payable account and a journal entry on an expense account “non-reclaimable VAT”. A standard booking procedure could be that you book all mixed expenses exclusive the VAT, so the net amounts, and you make the manual correction once per quarter. I would indicate the mixed expenses accounts as being mixed accounts. I’d prefer not to use the tracking codes. In case you want to discuss this with me, you could send me a private message. I’m familiar with this problem because I had a mixed business myself in the past. Accounting-services and insurance-services.
What @Hennie describes is a very practical solution. During the quarter post all expenses transactions as 100% VAT, then at the end of the quarter when you know your Sales mix for the quarter, adjust the Vat Tax Payable account to suit.
This is much cleaner then trying to calculate the mix per transaction.
