Do you want to guarantee the accuracy of your VAT return? Although completing VAT returns in the Netherlands is not in your interest, you want to do it correctly because VAT audits are common in the country. With a useful helpline, you can complete VAT returns and audit in the Netherlands.
VAT stands for value-added tax. It is an acronym for the tax you pay on your company’s revenue. As a business owner, you must pay VAT to the tax authorities on a monthly, quarterly or annual basis.
When should a VAT return be filed?
Following your registration in the Trade Register, the tax authorities will notify you of the frequency with which you must file a tax return. Entrepreneurs typically file a quarterly VAT report, but there are some exceptions:
Monthly: if you pay more than € 15,000 in VAT per quarter.
Annual: when you pay less than € 1,883 in VAT per year.
12 Important tips to avoid problems during a VAT audit
Each quarter, Bolder Launch receives a high volume of questions about the VAT return and VAT audit in the Netherlands. Because the requirements are not completely clear, we hear and observe self-employed individuals (beginners) make mistakes on their VAT returns. It’s unfortunate when funds are not reclaimed by the tax authorities or when you, as a self-employed person, wrongly claim back VAT, leaving you with an unpleasant surprise at the end of the year.
January, April, July, and October are the VAT months. For more clarity, below are 12 suggestions and 12 errors to avoid.
Useful tips to avoid problems during a VAT audit
Do you want the best advice for avoiding mistakes? They are listed below:
1. Get the VAT Alert App
Get a timely reminder by downloading the VAT alert app from the tax authorities immediately and keep up with tax advice and guidance.
2. Submit your VAT return promptly
It is certainly frustrating when the Tax and Customs Administration website is occasionally unavailable when you still must file your VAT return at the last minute. If the tax authorities refund your VAT, you have a good excuse for being on time.
3. Pay VAT on time
Avoid missing the deadline to transmit the funds and paying a tax administration fine. It is important to plan your payment via Internet Banking in advance once payment has been received on the tax authorities’ account.
4. Check if you need to make changes
It sometimes happens that you discover a purchase invoice or receipt that corresponds to a previous VAT period. Identify any changes or supplements you may have from the prior period (quarter) and include them in your VAT return (note: your supplement may not exceed € 1,000).
5. Don’t forget the start-up costs
Before you even began your business, you most likely already incurred expenses. Consider the website, business cards and logo. These expenses are deductible as “input tax” if you can prove that they are business-related. Also, don’t forget about your personal advance expenses.
6. Watch out for bad debts
Check if you still have sales invoices that were uncollectable. From the moment it is certain that your customer will no longer pay this invoice, you can credit this invoice. You can record a negative turnover this way and ask for your VAT to be refunded. Don’t leave since leaving would be unpleasant and would require some effort.
7. Check the invoice requirements
You may only reclaim the VAT on incoming invoices if the invoice meets the invoice requirements. Check your incoming invoices and ensure that you reclaim VAT correctly.
8. Check the Small Business Scheme
Do you have a limited turnover? You may be able to use the KOR or Small Entrepreneurs Scheme and you may be able to reduce or even eliminate your VAT payment.
9. Convert currency
Do you do business abroad? Convert the foreign currency to Euros correctly. In your administration, look at the rate that was in effect on the invoice date, not the rate that was in effect on the day of booking.
10. Use the right system
If you primarily supply goods or services to businesses, you will typically send invoices and use the invoice system (B2B). In this case, the date of the invoice determines when you must declare the VAT. Do you deliver to private individuals? Then you usually use the cash system (B2C). In the cash system, the moment of receipt of the payment determines the period in which you must declare the VAT.
11. Pay the invoice at the right time
If you use the invoice system (B2B), you should move your sales invoice to the next quarter at the end of the quarter. Smart invoicing eliminates the need to pre-fund VAT. This saves you from having to pay VAT while waiting for your customer to pay. Be smart with your invoices and therefore your liquidity.
12. Use the correct VAT code
Many freelancers use online tools. Think of MailChimp, Google Apps for Business, AdWords, Trello, etc. Use the correct VAT code for these costs. For example, ‘Acquisition within the EU 21%’ or ‘Acquisition outside the EU 21%’. Do not book these costs only on the heading ‘5b Input tax’.
Typical errors in the VAT return
On the other hand, are you curious about the typical mistakes in the VAT return? For your convenience, we’ve provided a list of the most typical ones:
1. Lost login details
We regularly hear ‘Where did I have that letter with login codes again?’. It’s unfortunate if you must do a lot of last-minute preparations in order to submit your VAT return on time. Requesting new login information takes approximately two weeks.
2. Focus on the payment moment
VAT payment time is not a leading indicator. The moment of payment is not considered by the tax authorities. The only thing that matters to the tax authorities is that it arrives in the bank account on time. So, consider weekends, holidays and the processing time required by your bank.
3. Failure to meet invoice requirements
Check whether your incoming invoices meet the invoice requirements of the tax authorities. The VAT on the invoice is only eligible for deduction or input tax if the invoice complies with the invoice standards. Be aware of this and thoroughly review your purchase invoices.
4. Splitting vat rate
It is common to see different VAT rates on the same invoice. For instance, consider an invoice that has 21 per cent for office supplies and 9 per cent for food and beverages. Split the amounts correctly. Therefore, do not falsely and mistakenly claim 21 per cent of the total invoice amount.
5. Wrong period
Most self-employed individuals file a quarterly declaration. For example, suppose you file a VAT return for the months of January, February and March. Your VAT return must be received no later than the end of April. So, don’t include April in your VAT return by mistake; this month belongs to the following (second) quarter.
6. Wrong exchange currency rate
Self-employed people regularly buy services or products abroad. Sometimes also in foreign currency, for example, a purchased online service in dollars. When converting to euros, do not use the current rate or the rate at the time of booking. Always use the rate that is applied on the invoice date. Tip: you can find the price of a certain date online.
7. Deduct business lunches
Normally, you can reclaim the VAT on business purchases as input tax. In the case of business lunches (Food & Drink), the regulations are a bit more complicated; it depends on where you eat. If you purchase lunch and have it at work, you are eligible to claim the VAT; but, if you eat lunch somewhere else, you are not.
8. Private use of the company car
As a self-employed person, you often drive privately with a business car. However, you still need to apply a correction because you were able to fully reclaim the VAT on driving expenses and most self-employed people frequently lack a conclusive mileage administration. This depends on the age of your car.
9. Lost a receipt
Be careful; if you don’t have a receipt, there is no input tax. Make sure you can provide an explanation when being checked. In the Netherlands, a receipt is very important in the VAT audit process.
10. Use of payment date
The invoice date determines which quarter the invoice falls under for the VAT return if you use the “invoice system.” Do not use the payment date to move the VAT. The invoice system applies to the majority of ZZP-ERS; as such, do not change your working method or confuse the invoice system with the cash system.
11. Foreign VAT
Different rules often apply for purchase and sales invoices abroad. There are several factors that influence VAT determination. Consider the country, the type of product or service and so on. You often must declare the VAT, but you can also deduct it as ‘input tax’. Coordinate your situation with your bookkeeper or accountant to ensure that you are following the correct rules; do not use wet-finger work.
12. Lack of structure
The last and certainly not the least important mistake is the lack of structure and overview. Track your income and expenses systematically and with consistency. Organise your administration digitally or, if necessary, on paper in the folder so that you can easily find everything, whether by customer, date or other criteria. Regularly update your administration to avoid having to do a lot of work for your VAT return at the last minute.
If you need assistance in your VAT audit concerns for your Netherlands-based company, do not hesitate to reach out to our team.