As an entrepreneur or self-employed person, you will have to deal with it sooner or later: VAT. Whether you are just starting out or have been around for a while, correctly accounting for VAT remains an important part of your administration.
But what exactly does VAT accounting entail? How do you make sure you don’t forget anything and everything is correct for your tax return? In this blog, we explain it clearly and practically.
What is VAT anyway?
VAT stands for value-added tax. It is a tax you charge to your customers, which you then remit to the tax authorities. At the same time, you can usually deduct the VAT you pay yourself on business expenses. You pay or get back the difference.
When should you book VAT?
Btw you book every time you:
- sends an invoice (turnover, i.e. collecting VAT),
- receive an invoice (cost, i.e. reclaim VAT),
- makes a private expenditure with business funds (correction needed),
- or in special situations such as foreign deliveries.
How do you book VAT in your records?
Here is a basic step-by-step plan:
1. Distinguish between VAT rates
Not every service or product has the same VAT rate. In the Netherlands, we know:
- 21% (high)
- 9% (low, including for food and some services)
- 0% (for export, for example)
- Exempt (e.g. healthcare, education)
Make sure you properly record this for each transaction.
2. Use a good accounting tool
Accounting software, such as TriFact365, helps you split VAT automatically. Enter per entry:
- Amount excluding VAT
- VAT amount
- Amount including VAT
- VAT code (e.g. high/low/0%)
3. Check your purchase invoices
Not all VAT is deductible. Check if:
- The invoice is in your company’s name
- They are business expenses
- VAT is correctly stated
4. Filing VAT returns periodically
Most entrepreneurs do this quarterly. You will need:
- Total VAT received (turnover)
- Total VAT paid (expenses)
- The difference = VAT payable or recoverable
You enter this through the Inland Revenue’s portal, or your software does this automatically.
Common mistakes in VAT accounting
- Forgot to split VAT from total amount
- Booking private expenses as business with VAT deduction
- Trying to reclaim foreign VAT without proper registration
- Using wrong VAT code in software
A mistake is quick to make, but fortunately also quick to correct – provided you realise it in time.
Bonus: What if you can’t deduct VAT?
Some professions or services are VAT-exempt. In that case, you may not charge VAT, but you may also not reclaim VAT. You must then pay close attention to purchases: VAT is then an expense.
Accounting for VAT is not complicated, as long as you keep track of it and know what to look out for. By working with a set procedure and keeping regular records, you will avoid stress on your VAT return. And remember: if in doubt, you can always consult a bookkeeper or accountant.
