VAT accounting

What it means

VAT accounting means recording output VAT and deductible input VAT in account 343 under double-entry bookkeeping. Input VAT is debited, output VAT credited, and the balance for the tax period shows the VAT payable or the excess deduction.

VAT is neither a cost nor revenue for a VAT payer as long as it is entitled to deduct it. Costs or assets are therefore booked net of tax and VAT goes separately to account 343. Where there is no right of deduction, the non-deductible tax becomes part of the cost or of the asset's acquisition price.

The balance of account 343 should agree with the figures in the VAT return. Differences point to an error, such as an unbooked invoice, a wrong period or an incorrect rate, and should be explained and resolved before the return is filed.

How it works in practice

Account 343 usually has sub-accounts by tax rate, type of supply and tax period. This makes it easier to check the figures, prepare the return and the VAT control statement, and correct earlier periods through supplementary returns.

Under the reverse charge, for example when buying a service from a foreign supplier or for construction work, the tax is booked as both output and input VAT at the same time. If the company has a full right of deduction, the net effect on account 343 is zero, but both entries must appear in the return.

After the return is filed, an excess input VAT is transferred from account 343 to a receivable from the tax office until it is refunded or offset. Under proportional VAT deduction, the non-deductible part is expensed and the coefficient is settled at year-end.

What to watch out for

VAT is booked in the period in which the tax liability or the right of deduction arose, which may not be the period in which the invoice is otherwise recorded. For invoices received late, the deduction period must be determined correctly, otherwise discrepancies arise with the supplier's control statement.

Rounding and exchange differences on foreign currency invoices can cause small differences between the account and the return. It helps to have clear rules for handling such differences and to reconcile account 343 regularly with the taxpayer's personal account on the Financial Administration portal.