Or, to put it in slightly more legal terms: what is the taxable amount for VAT. This question is important for businesses that supply VAT-taxable services. After all, they must state the correct amounts of VAT on their invoices and in their VAT returns.
The remuneration
The law is quite brief on this point: VAT is calculated on the fee. And the fee is the total amount which you receive in return for the service (supply of goods and/or services) you provide. If you receive more than you have invoiced, you must also pay VAT on the excess (you can find the exception in our factsheet on tips). If you do not receive a sum of money, the remuneration is equal to the market value of the consideration you receive.
Here’s a simple example. You’re a self-employed (interim) manager and have agreed to be paid €7,500 per month for an assignment. On top of that, you’ll receive €0.19 per kilometre travelled as part of your assignment. If you drive 1,000 kilometres in a month and charge your client €190 for this, you must charge VAT on €7,500 + €190 = €7,690.
Exceptions
But, as is so often the case in tax law, it is not quite that simple. In a new version of the policy decision With regard to the basis of assessment for VAT, the State Secretary for Finance explains the exceptions to the main rule described above. This decree contains the rules on tips already referred to above. It also sets out how a credit restriction surcharge can be accounted for. The rules for accounting for cash payment discounts can be found in the Turnover Tax Implementation Decree.
Recurring items
One important category that is not included in the VAT taxable amount is that of pass-through items. These are sums that a trader pays in the name and on behalf of their client. The payment made by the trader must be based on a direct legal relationship between their client and a third party.
Examples of recurring items include (these examples can be found in the policy decision):
- transfer tax paid in the name and on behalf of the purchaser in respect of a property;
- VAT paid on the importation of goods in the name and on behalf of the trader for whom the goods are intended;
- BPM paid by a car dealer when registering the car in the name and on behalf of the buyer;
- court fees paid in the name and on behalf of the party to the proceedings;
- costs incurred in the Netherlands for the supply of energy for land vehicles by the service station operator, provided that those costs are paid in the name of and on behalf of the fuel cardholder (provided that the costs can be identified individually, for example on the basis of card numbers and records).
The policy decision also gives two examples of situations in which there are no recurring items:
- the BPM that an importer pays in their own name and on their own behalf when registering a car;
- the cost of delivering goods to the customer, where the delivery is at the seller’s expense and risk (postage costs generally form part of the consideration on which VAT is payable).
To be clear: the kilometres charged at €0.19 in the example above do not qualify as a recurring item. After all, they do not arise from a legal relationship between the manager’s client and a third party.
In practice, business owners often treat accruals as “ordinary” items. They then include the amount in the remuneration on which they calculate the VAT payable. And they deduct the VAT charged on the recurring item. This deduction is then incorrect and may be adjusted by the tax authorities. The policy decision does, however, provide approval for this, subject to the following conditions:
- the costs will be passed on at the same amount and under the same VAT regime;
- These costs are listed separately on the invoice;
- The trader does not include the amount of these costs when determining his entitlement to deduct VAT on his general expenses (pro rata calculation).
Private use
The Act contains specific rules for determining the basis of assessment for VAT payable on the private use of goods and services and on internal supplies. Private use refers to use for the private purposes of the business owner or their staff, as well as any use for purposes other than business purposes.
Do you have any questions about the VAT chargeable amount? Please contact the advisers to VWGNijhof.