Booking VAT means recording, per transaction, how much VAT you charged and how much you paid, so the two can be set against each other in your return. You record output VAT when you invoice a customer and input VAT when you receive a supplier invoice, and the difference is what you pay or reclaim. In this article you can read when to record VAT, how to do it in six steps, a worked example of a quarterly return, and the mistakes that cost the most time to correct.
Two things to pin down first. “Booking” here means entering an amount in your ledger, the bookkeeping sense, not a reservation. And the rates in this article are the Dutch ones, used as an example: the mechanism of output VAT minus input VAT is the same across the EU, but the percentages, the filing frequency and the exemptions are national. Check your own tax authority for the figures that apply to you.
Looking for something more specific? If the invoice has no VAT on it because it was reverse charged, see the VAT reverse charge. If you want the ledger sides behind these entries, read what credit means in accounting. And if you want to see a return calculated, go to the worked example.
Table of contents
What is VAT, briefly?
VAT stands for value added tax. It is a tax you charge your customers and remit to the tax authority, and at the same time you can usually deduct the VAT you pay on business expenses. You pay or reclaim the difference. That is why the recording matters: if the two sides are not captured separately per transaction, the difference cannot be worked out at the end of the quarter.
When do you record VAT?
You record VAT every time you:
- send an invoice: revenue, so VAT you have charged and owe.
- receive an invoice: a cost, so VAT you can usually reclaim.
- make a private payment from business funds: a correction is needed, because that VAT is not deductible.
- deal with a special case: cross-border supplies, or an invoice with the VAT reverse charged.
Booking VAT in six steps
The routine below is what turns a pile of invoices into a return you can file. Steps 1 to 3 happen per invoice, steps 4 to 6 once per period. Per step you can read what you do and what you have at the end of it.
1. Split the amount into net, VAT and gross
Record per entry the amount excluding VAT, the VAT amount, the total including VAT and the VAT code. Booking only the gross amount is the single most common error, because the VAT then disappears into the cost and cannot be reclaimed. Result: an entry from which the return can be built without recalculating anything.
2. Apply the right rate per line
Not every product or service carries the same rate. In the Netherlands there is 21% as the standard rate, 9% reduced (food and some services), 0% for exports, and exempt categories such as healthcare and education. An invoice can carry more than one rate, and then each line gets its own. Result: a VAT split that survives a check.
3. Check whether the input VAT is deductible
Not all VAT can be reclaimed. Verify that the invoice is in your company’s name, that the expense is genuinely a business one, and that the VAT is stated correctly on the document. An invoice in a personal name is not a valid basis for deduction, however business the purchase was. Result: only deductions you can defend.
4. Add up output and input VAT for the period
Total the VAT you charged on sales and the VAT you paid on purchases. Do this per rate, not as one lump, because the return asks for the split. Result: two totals and their difference, which is the amount payable or recoverable.
5. File the return
Most businesses file quarterly, some monthly or annually depending on size and country. You file through your tax authority’s portal, or your accounting software submits it for you. In the Netherlands that is the Belastingdienst. Result: a filed return and a payment or refund with a date attached.
6. Reconcile and file the documents
Check that the VAT balance in your ledger matches what you filed, and keep the underlying invoices searchable alongside the entries. If a question comes months later, the document is what answers it. Result: a period you can close, with every figure traceable to an invoice.
A worked example: one quarter
Suppose that in one quarter you invoiced 20,000 euro excluding VAT at the standard 21% rate, and had 6,000 euro of business costs, also at 21%. The return then looks like this:
| Revenue excluding VAT | € 20,000 | |
| Output VAT (21%) | € 4,200 | |
| Costs excluding VAT | € 6,000 | |
| Input VAT (21%) | € 1,260 | |
| VAT payable | € 2,940 |
So you pay 2,940 euro, not 4,200. That difference of 1,260 euro is exactly what you lose if the input VAT was never split out per invoice and disappeared into the cost figure. On a full year at this level that is roughly 5,000 euro of deduction resting on nothing more than whether the VAT was recorded separately.
Five common mistakes
- Not splitting the VAT out of the total. The 1,260 euro from the example above, gone into the cost account.
- Booking private spending as business with a deduction. A correction is needed, and this is the item an inspection looks for first.
- Reclaiming foreign VAT without the right registration. Foreign VAT usually does not belong in your domestic return; there is a separate refund route.
- Using the wrong VAT code in the software. The totals still add up, so nothing looks wrong until the return does not reconcile.
- Treating a reverse-charged invoice as VAT-free. There is no VAT on the document, but you still have to declare it. Missing that is a shortfall in your own return.
What if you cannot deduct VAT?
Some professions and services are VAT-exempt. If that is your situation you charge no VAT, but you also cannot reclaim any. That changes how you record purchases: the VAT is then part of the cost rather than a receivable, so the gross amount is what lands in your expense account. Getting this the wrong way round overstates both your costs and your deduction.
Automating the recording with TriFact365
Filing the return happens in your accounting package. TriFact365 handles the step before it: the software recognises your purchase invoices and prepares a booking proposal in your own portal, with the net amount, the VAT amount and the VAT code split per line. After your check and approval the entry goes to your accounting package with the document alongside it. That is steps 1 to 3 above done without retyping, which is where the deduction is usually lost. Read more about processing incoming invoices.
Frequently asked questions
Recording per transaction how much VAT you charged and how much you paid, split from the net amount, so the two can be set against each other in your VAT return.
The amount excluding VAT, the VAT amount, the total including VAT and the VAT code. Recording only the gross amount means the VAT cannot be reclaimed.
Output VAT on sales minus input VAT on purchases. On 20,000 euro of revenue and 6,000 euro of costs at 21%, that is 4,200 minus 1,260, so 2,940 euro payable.
Most businesses file quarterly, though monthly or annual filing applies in some cases. The frequency and the deadlines are set nationally, so check your own tax authority.
No. The invoice has to be in your company’s name, the expense has to be a business one, and the VAT has to be stated correctly. Private spending and exempt activities fall outside the deduction.
There is no VAT on the document, but you declare it yourself and usually deduct the same amount in the same period. Treating such an invoice as VAT-free leaves a shortfall in your return.
No. TriFact365 prepares your purchase invoices as a booking proposal with the VAT split per line, ready for your accounting package. The return itself you file from that package.
In closing
Booking VAT is not complicated as long as you keep to a routine: split every amount into net and VAT, check that the deduction is justified, and total the two sides per period. Do that per invoice rather than in a rush at quarter end and the return becomes a matter of reading off two figures. If in doubt about a specific case, a bookkeeper or accountant settles it faster than a search does.
