When you've bought something or ordered a service, you've probably been presented with a VAT invoice. This is the VAT charged, and it's something you have to pay for performing a service or buying something. But what should you know about it? Does it apply to everything? Or just to businesses?
If you want to know more about this percentage and how much you can be paid, how to do it and where that money goes, pay attention to what we are going to tell you. Shall we begin?
What is output VAT?
The VAT charged can be conceptualized as that percentage of VAT that a person pays when hiring a service or purchasing a product. This, unless otherwise stated, is separate from the price they give you.
For example, if you are going to buy on Amazon, all the prices that appear are already with VAT included. In fact, you can see this if you go to your orders and, in the dots on the right, ask for the invoice to be downloaded. There you will see that, when you present it, the base price of what you have bought is lower and then VAT is added, if it has VAT.
In the case of services, when you request a service, it is normal for the quote you are given to be without VAT, and they specify this so that you know that, when it comes time to pay, you will have to pay for the service provided plus the amount of the tax (which is VAT).
The Companies, entrepreneurs and self-employed persons are the people who are in charge of collecting this tax.. However, you can rest assured that they are not going to keep it. In reality, they have to pay that VAT to the Treasury afterwards; they only charge for the service provided.
To do this, they have to make a quarterly declaration (although sometimes it is monthly) and what they do is fill out form 303 or 390 to pay all the VAT that they have received from their clients and that does not correspond to them (but is from the Treasury).
Now you should know Also, companies and self-employed people do not collect all the VAT they charge.This is because they also bear VAT on their expenses. Therefore, when it comes to accounting, the VAT to be paid is always the difference between the VAT charged to customers and the VAT paid on what they have had to buy.
For example, imagine that you are self-employed and you have invoiced a VAT charge of 1000 euros. Also, in that period, you have had an input VAT charge of 500 euros.
When filling out the tax form (form 303), the Treasury has two sections. In the first section you will enter the base (what you have charged) and the VAT charged that you have charged to later give it to the Treasury. In the second section you have the base of your expenses and the VAT that has been charged to you.
In this way, when it comes time to pay taxes, you will have to pay the Treasury the difference between what you have collected for this administration and what you have paid in VAT. That is, and using the figures from the example, 500 euros.
What is the difference between output VAT and input VAT?
You may have seen these two terms before, but the difference may not be clear to you. It's actually quite easy to understand.
The VAT charged is what the client pays to the company or self-employed person for a service or product.
El VAT paid is what the company or self-employed person pays for services or products that he or she needs and acquires. For example, if you need to buy a computer, you will pay for that product plus the VAT that the company charges the person who buys it from. This VAT is the amount borne by the person.
Let's take another example. Imagine that you are a person who is also self-employed. A tap breaks in your house, and you go to the store to buy one. There, the person selling the product gives you an invoice with the price of the tap plus the VAT charged.
Now, on that same day, you have to give an invoice to a client for a service you have provided. In this case, your invoice will also have the base (what you charge) and the VAT.
What is the difference? The VAT charged will affect your client. But the VAT paid (on the purchase of the tap) is paid by you.
To make it clearer: the VAT paid is related to the person who is going to pay that tax. And the VAT charged is related to the person who collects that tax.
How output VAT works
The VAT charged is related to the product or service you provide. And depending on the category, The VAT charged will generally be 4, 10 or 21% (In reality, there are more percentages, but the most well-known and used are these).
Think of a service, for example, an email marketing service. You charge 100 euros for that service to clients, and you get a client. Good. When you make the invoice, you know that you are going to charge them 100 euros for the service. But, in addition, you have to include the 21% tax, which would be the VAT charged. That is, 21 euros.
Therefore, what your client has to pay is 121 euros. Of those 121, 21 euros are not yours, but belong to the Treasury and, a priori, you will have to pay them quarterly (in April, July, October and January respectively).
However, in reality, you would not have paid 21 euros. It is possible that, in your expenses as a professional, you may have had to buy something that has a VAT of 11 euros. Well, the Treasury understands that, as you have also borne a VAT (because it has been passed on to you), the difference is what you will pay to the Treasury.
And the other person (whoever made the invoice for you) will be the one who will pay the VAT that you have paid, deducting the VAT from their expenses).
Is it now clear to you what VAT is and how it works?