Value Added Tax (V.A.

T)

3. Other current liabilities : sales taxes payable

Sales tax is expressed as a stated percentage of the sales price on goods sold to customers by a company. The company collects the tax from the customer when the sale occurs. Company periodically remits the collections to the states department of revenue.

Company is a collection agent for the tax authority

31. The Value Added Tax (VAT)

311. General principle
When a business sells goods or services, Value Added Tax (or VAT) is added to the selling price Here, Business A sells goods at a price of 2 000. This will be the figure to be recorded as income in A's Sales account. However the amount invoiced will be 2 392 , which is selling price + VAT at 19,6%. This will be the amount paid by the customer. However, only 2 000 belongs to A, the VAT has to be paid by A to the government.

Business A

A : sale Goods + VAT (19,6%) Total .

2 000,00 392,00 2 392,00

Sales figure Paid over to Government Total payable by B

Business B

Let's say that the goods have been bought by Business B, who then sells them on their customer at 3 000. Again, the business must charge VAT on sale, so the customer must pay 3 000 plus VAT i.e 3 588. As with business A, B can only record 3 000 as a sale ; the remaining VAT of 588 is collected on behalf of the government.

B : Purchase Goods + VAT (19,6%) Total . B : Sale Goods + VAT (19,6%) Total . Customer Goods + VAT (19,6%) Total .

2 000,00 However, B does not pay the full 588 to the government. 392,00 When it bought the goods from A, it paid A's price of 2 000 plus VAT 2 392,00 of 392 which A then paid to the government. The government has already got this 392, so B only pays over the 3 000,00 difference i.e 588 on its sale less 392 on the purchase giving 196 payable. 588,00 3 588,00 When the goods are bought by a private individual he or she must bear the full cost. The customer here has paid 3 588 , of which 3 000 went to business B and 588 went to the government (392 paid by A and 196 paid by B)

3 000,00 588,00 3 588,00 cost to customer

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B : Purchase Goods + VAT (19,6%) Total . B : Sale Goods + VAT (19,6%) Total .

2 000,00 392,00 2 392,00 3 000,00 588,00 3 588,00

Input VAT
difference paid to the government

The VAT suffered by a busines on its purchases and expenses or its inputs, is termed Input VAT

Output VAT

The VAT charged by a business on its sales, or outputs, is termed Output VAT

For a given period, a business will pay ove to the government the difference between its output VAT and its input VAT. If input VAT exceeds output VAT, the government will refund the amount to the business.

312. VAT registration and rates

Registration compulsory if taxable turnover exceeds limits. In France the limits are : - 80 300 for the sales of goods ; - 32 100 for services supplied For VAT supplies can be : - taxed at 5,5 % (reduced rate) - taxed at 19,6% (standard rate)

in France

Reduced rate : 5,5% The reduced rate applies to a limited range of goods including : Examples : - food - transport - books Standard rate : 19,6% The standard rate applies to everything else : - motor vehicles -adult closing - electrical equipment

313. Accounting entries

3131 - Input VAT
Input VAT Company A receives the following invoice from a supplier of repairs and maintenance

Company Name
Invoice No. 215 Invoice Date:

WRAPPING TOOLS LTD

10-juin-10 Price VAT incl 2 870,40

Date 10.6.10

Description Spare parts for wraping machine

Qty 2

VAT % 19,6%

Price Euro 1 200,00

Total Euro 2 400,00

VAT 470,40

Total VAT Amount Payment VAT Analysis: VAT % 19,60% NET Euro 1 000,00 VAT Euro 100,00 Balance Due

2 400,00 470,40 2 870,40

Payment within 30 days end of month

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Journal entry
Date Acc Nr Acc titles and explanation Ref Debit Credit

2010 June 10

615600 Repairs & maintenance 4456 VAT deductible Wrapping tools ltd account payable
Recording of invoice Nr 215

inv 215

2 400,00 470,40 2 870,40

3132 - Output VAT

Output VAT Company A issues the following invoice for the supply of goods to customer B

Company Name
Invoice No. Customer: Date Description R307 Invoice Date: 30 th june 2010 Company: B Qty 100 VAT % 5,5% Price Euro 110,00 Total Euro 11 000,00 VAT 605,00 Price VAT incl 11 605,00

2010 June 30

Case of soda

Total VAT Amount Payment VAT Analysis: VAT % 0,0 NET Euro 0,00 VAT Euro 0,00 Balance Due

11 000,00 605,00 11 605,00

Payment within 30 days end of month

Journal entry
Date Acc Nr Acc titles and explanation Ref Debit Credit

2010 June 30

411 Customer B - Accounts receivable 701 Sales of goods 4457 VAT collected
Issuance of invoice R 307

11 605,00 11 000,00 605,00

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3133 - Payment of VAT

At the end of June 2010, the situation is the following for Company A :
amount in

- Total VAT collected - Total VAT deductible VAT payable to government . Journal entry
Date Acc Nr

12 300 10 100 2 200

residual VAT is payable the next month

Acc titles and explanation

Ref

Debit

Credit

2010 July, 21

4457 VAT collected 4456 VAT deductible 4455 VAT payable

VAT due to government for June transactions

12 300,00 10 100,00 2 200,00

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