VAT is an indirect tax on consumption i.e. the cost of VAT is reflected in the price of the final consumer and has no influence on the result of the business. The VAT collected by companies is paid in full to the public authorities. The latter is based on a compensatory double-mechanism of collection and deduction. This is why it is important to differentiate deductible VAT from collected VAT. In fact, for a business, deducting VAT presupposes collecting it in return.
Deductible VAT: this is the VAT paid by the company when it purchases goods or services from its suppliers
Recoverable VAT corresponds to the part of the “deductible” VAT that the company pays when paying for its purchases, and that it is entitled to deduct from the “collected” VAT when it collects payments from its customers. It is therefore the difference between the two VATs recoverable VAT = collected VAT – deductible VAT. If the difference between the two VATs is positive, then the sum is returned to the State. Otherwise, i.e. when the deductible VAT is higher than the VAT collected, it is the State which is in debt and owes the company money. This debt is called a VAT credit. Two options are available to the company: keep this credit to pay the VAT that will be due later or ask to be reimbursed by the State. The use of the tax return calculator comes useful there.
To come back to recoverable VAT, recovery of VAT only concerns certain professional expenses and it is better to know which ones!
- Misconception No. 1: VAT on travel expenses is always deductible
- Misconception No. 2: VAT on catering and accommodation costs is deductible
- Misconception n ° 3: you automatically benefit from VAT deductions
- Misconception # 1 : VAT on travel expenses is always deductible
VAT on travel costs: a trap to avoid
Business travel costs (kilometer costs, tolls, parking, accommodation costs, and restaurant costs) represent a significant portion of your employees’ expenses. So it seems logical to think that you have a significant VAT to recover on all these expenses. It is a mistake.
Indeed, travel costs such as plane tickets, train tickets or car rental are not subject to VAT. You therefore have no VAT to recover on it.
- The same goes for mileage allowances.
- In general, there is no deductible VAT on travel expenses, so no recoverable VAT.
In the case of the purchase of a commercial vehicle , you can recover the VAT . On the other hand, the purchase of a so-called “private” vehicle (in general, a company car) is part of the professional expenses for which VAT is not deductible.