VAT declarations are a must for all companies (except those exempt from VAT). In order to communicate the amounts of VAT collected, it is necessary to go through the famous VAT declaration.
Let's take a look at a few basic principles of VAT declaration.
VAT is an indirect tax paid by consumers. With the exception of a few special schemes, businesses do not pay VAT, but collect it on behalf of the State. As a result :
- You pay VAT to your suppliers (= deductible VAT),
- You invoice your customers for it (= output VAT),
- You recover it when you have a VAT credit (input VAT > output VAT).
- You pay VAT to the State when output VAT is > input VAT
This means keeping track of your VAT flows. On a monthly, quarterly or annual basis, you must calculate the amounts of VAT paid (deductible) and invoiced (collected or invoiced to your customers), and enter them on your VAT return.
It is the difference between these two VAT amounts that will be taxed at the current VAT rate. Hence the name "value-added" tax.
Finally, an important point:
- In order to calculate the VAT to be declared, your accounts must be accounting must be up to date up to the date of the end of the period for which you are declaring VAT.
- To determine the amounts of VAT to report on your VAT return, you need to know whether your business requires you to collect VAT on your receipts (in most cases) or on your debits.
This is an important distinction that will determine when you have to declare these sums on your VAT return.
And in KAFINEA? #
Naturally, KAFINEA meets the legal obligation to track your VAT flows, and enables you to generate a VAT return in just a few clicks, all in an extremely simple way. Most actions are automated.
When documents are entered (customer invoices, supplier invoice ), accounting entries, including input and output VAT, are generated automatically. To find out more, please read our dedicated article: How automatic accounting entry generation works.
Thanks to a few additional settings, you can define :
- VAT collection mode (cash or debit),
- The different VAT accounts according to the different rates in force
With just a few clicks, you'll be able to generate a VAT return for each reporting period, and find out how much you need to declare to the government.
Settings #
- The VAT collection method
The first step is to set the VAT collection mode. The options are available via the following path: Finance > Accounting > Settings > VAT on incoming payments.
The default collection mode is VAT on debits. Use the checkbox to switch to VAT on receipts. You will also need to set up transitory accounts to enable automated calculations to run smoothly.
Tip : The VAT collection mode can be modified at any time, but to simplify exchanges with the authorities, we recommend that you only modify it at the start of the financial year.
Good to know:
VAT on receipts: VAT is payable on the day of payment for the service (receipt). This method is often used for the provision of services.
VAT on debits: VAT is due on the date the invoice is issued. This method is mainly used for the supply of goods.
- The different VAT accounts
Generally speaking, in accounting, it is preferable to use several output VAT accounts when the company makes sales subject to several different VAT rates.
In KAFINEA, this method is applied to both output and input VAT, for greater simplicity when generating the VAT return.
Parameters are set using strategies, a concept unique to KAFINEA, from the following path: Finance > Accounting > Settings > Account number assignment strategy for Products and Services.
To define output tax accounts, follow the steps below:
- Select : Sales tax accounts
- Define an explicit name, e.g. VAT Collected 20%.
- Select the Tax, corresponding to the rate: in our example 20%.
- Select the context: in our example, sales
- Select the account number: in our example, a sub-account of the output VAT account 44571, e.g. 445712.
The same steps are to be repeated for deductible VAT accounts:
- Select : Purchase tax accountsts
- Define an explicit name, e.g. Deductible VAT 20%.
- Select the Tax, corresponding to the rate: in our example 20%.
- Select the context: in our example, purchasing
- Select the account number: in our example, a sub-account of the input VAT account 44566, e.g. 445662.
All these steps must be repeated as many times as there are VAT rates used for your activity, in each sales or purchasing context.
Important : The VAT strategies you have just created will be used in item strategies for the VAT: Any rate option.
Generate a VAT return
Once the period to be declared has expired, and your accounting records are up to date, you can generate a VAT return in just a few clicks. To do so, go to the declaration tool : Finance > Accounting > VAT declaration & others
- Add a recording
- Select a start and end date for the reporting period of interest (month, quarter, year).
- Check the proposed amounts and adjust them if necessary in the 'Declaration' sections
- Register
On registration, all accounting entries corresponding to your VAT return will be automatically recorded on the last day of the selected period. Autogenerated entries can be viewed in the 'Entries' tab of the declaration.
Good to know: when creating a declaration, the VAT Overview section provides a detailed view of the amounts for each VAT account in your chart of accounts. In the 'Declaration' sections, some of these amounts are aggregated to correspond to the amounts to be declared according to the official government forms.
Important : it is not possible to modify a VAT return. The figures proposed take into account the auto entries generated by the creation of the declaration. If, after recording, but before transmitting the amounts to the authorities, you wish to adjust your declaration, you will need to delete it and create a new one. Deleting the record will also delete the auto-generated accounting entries, so the figures proposed will be consistent with the period selected.