Year-end VAT tips 2021
Which items belong in your final VAT return of the year? We set out the points to watch, from VAT groups and private use to the small business scheme and record retention.
The business
Report the ending or amendment of a VAT group
Businesses within a VAT group are jointly and severally liable for its VAT debts. Where a member no longer carries out economic activities, or one of the linkage conditions is no longer met, inform the inspector and end or amend the group. That brings the joint and several liability of the departing members to an end.
Supervisory board members
In June 2019 the Court of Justice held that a supervisory board member is not independent for VAT purposes and therefore not a taxable person. In 2020 the Dutch Supreme Court reached the same conclusion for the chair and a member of objection advisory committees. The State Secretary for Finance set out the consequences in a decree published on 6 May 2021.
That decree applies retroactively to 13 June 2019, so from that date no VAT is due on the work of supervisory board and committee members. Where VAT was still charged after June 2019 and businesses or institutions deducted it, they keep their right to deduct. A board member can also correct the invoices retrospectively, which may be attractive for customers unable to deduct the VAT in full.
For the period from 13 June 2019 to 7 May 2021 the decree contains a concession: board and committee members who continued to charge VAT are still treated as taxable persons until 7 May 2021, so their own deduction remains intact. Even where they later issue credit notes, that deduction need not be corrected.
Importantly, supervisory board and committee members should deregister for VAT where they have not already done so and have no other business activities.
Immovable property
Opting to tax a supply
The supply of buildings that have been in use for more than two years at the time of supply, or of undeveloped land that is not building land, is in principle exempt. The parties can opt for a taxed supply, provided the buyer uses the property at least 90% for taxable activities in the year of supply and the following year. For certain sectors, including employers' organisations, estate agents, travel agents, occupational health services, postal operators and public broadcasters, 70% is enough.
Opting prevents the seller from having to adjust part of its deduction on a supply within the adjustment period, or allows it to recover an additional part of the VAT on acquisition. The buyer must send a declaration to the seller and the inspector within four weeks of the end of the year following the year of supply, stating whether the test has been met.
If you have to give such a declaration in 2022, note it in your diary now. If you are due to receive one, note when the four-week period expires so you can remind the buyer if it fails to deliver.
Where you opt to tax, agree expressly with the buyer that it will fully reimburse any adjustment VAT assessed, including interest and penalties. Without that clause the seller risks an assessment even though the failure to meet the conditions is down to the buyer.
Opting to tax a letting
Letting immovable property is in principle exempt. The parties can opt for a taxed letting, provided the tenant uses the property at least 90% (or 70% for the sectors named above) for taxable activities. Where the tenant no longer meets that test in a given year, the letting becomes exempt, which can affect VAT deducted earlier. There is an exception where the insufficient taxable use was not reasonably foreseeable and was incidental.
If you rented property in 2021 under an option to tax, check whether you met the test. If not, you must report that to the landlord and the tax authorities within four weeks of the end of your financial year, in a declaration signed by you.
Rates
Exemption and reduced rate for mind sports withdrawn
Until now mind sports have been treated as sport in the Netherlands, so that they could fall under the sports exemption or the reduced rate for providing opportunities to take part in sport. The Court of Justice has held, however, that mind sports are not sport, because the physical element is negligible.
The State Secretary examined whether the cultural exemption could offer a way out, but concluded that bridge, chess, draughts and go are not intangible heritage. From 1 January 2022 the standard rate therefore applies to these mind sports, unless the small business scheme can be used.
Input VAT deduction
Adjusting deduction on general costs
A business using goods or services for both exempt and taxable supplies can in principle deduct only part of the VAT. On first use, the VAT deducted must be adjusted using the data for that period, based either on turnover ratio or actual use. At the end of the financial year a further full adjustment follows using the data for the whole year.
VAT under-deducted can be claimed in box 5b of the final return of the year. VAT over-deducted goes in the same box as a negative figure and must be repaid.
Where you use the turnover ratio, you may round the percentage up: 8.1% becomes 9%.
Adjusting deduction on capital goods
Deduction is in principle final after the adjustment at the end of the year of first use. For capital goods an adjustment period then runs of nine years for immovable property and four years for movable capital goods, meaning movable goods on which depreciation is or could be taken for income or corporate income tax purposes. The adjustment tests whether the extent of deduction at the end of the year of first use matches use in the following years.
Unlike the adjustment at the end of the year of first use, a divergence in later years does not lead to correcting the whole amount, but only the part attributable to that year: one tenth for immovable property and one fifth for movable capital goods. Where use of a property changes in year 5 from fully taxable to fully exempt, one tenth of the VAT originally deducted must be corrected each year from then on.
No adjustment is made where the amount qualifying for deduction under the adjustment rules differs by no more than 10% from the amount deducted. That 10% rule applies both to amounts recoverable and to amounts payable.
Private use of a company car
Where a company car was used privately in 2021, including home-to-work travel, by the business owner, partners or staff, 21% VAT must be paid in the final return of the year on the expenditure attributable to that use. The amount goes in box 1d.
Where no mileage records were kept, 2.7% of the list price including VAT and registration tax is due. There are exceptions:
- where four years have passed since the year of first use, 1.5% applies
- where the car was bought without VAT, 1.5% likewise applies
- where there was only home-to-work travel
- where a contribution is paid for the private use
The charge is time-apportioned. A business entitled to deduct that bought a car with VAT and first used it on 1 July 2021 can therefore account for 6/12 × 2.7% × list price.
Business use of a private car
A sole trader using their private car for business can deduct the VAT on running and maintenance costs, to the extent they make taxable supplies. Where there are no mileage records showing the extent of private use, it is accepted that deduction is restricted in proportion to expected private use. Where that expectation is unknown, as accurate an estimate as possible must be made using objectively verifiable facts, including experience.
Alternatively they may deduct the VAT in full and declare a correction of 1.5% of the list price in box 1d of the final return for 2021. That is only permitted where the records do not show the extent of private use.
Private use of capital goods
Where a business has allocated a capital good used both for business and privately entirely to its business assets and deducted the VAT in full, it must declare a charge for private use in the final return for 2021, in box 1d. The taxable amount is the expenditure incurred on the service, and the charge is time-apportioned.
A distinction applies between acquisition or manufacturing costs and maintenance and improvement costs.
For acquisition or manufacturing costs, the costs attributable to private use must be determined on the basis of actual private use. Those costs are spread over five years for movable and ten years for immovable capital goods, with the year of first use counting as the first year. The business chooses a method that makes actual private use plausible, for instance based on floor area or on days, nights or hours, and must choose the method that best reflects it. Where mixed use occurs simultaneously, as in a combined home and business premises, floor area usually works best. A time-based calculation suits a holiday home used both privately and for business.
For maintenance and improvement costs the same rules apply, but the private use of those costs is taxed in full in the year of use.
For immovable property allocated entirely to business assets from 2011 onwards, deduction is based on expected business use. Changes are corrected in the same way as changes between taxable and exempt use.
Private use of services
According to the State Secretary, a charge for private use of services arises with externally purchased services taken free of charge and with services the business performs internally. Think of a cleaning company having its staff clean the owner's home or staff members' homes. VAT is due on the costs attributable to the private use and goes in box 1d of the final return for 2021.
Canteen provision for staff
Providing food and drink to staff triggers an adjustment where the cost of staff benefits per employee exceeds € 227. Where the cost excluding food and drink stays below that figure, only the deduction on the canteen provision is adjusted.
The total is calculated as follows:
| Item | Amount |
|---|---|
| Cost of food and drink excluding VAT | € ... |
| Mark-up of 25% | € ... |
| Notional turnover | € ... |
| Actual turnover including VAT | € ... |
| Difference | € ... |
| Divided by the number of employees | € ... |
The difference between notional and actual turnover is the amount spent on staff. Divided by the number of employees it gives the benefit per person, which is added to any other staff benefits and tested against the € 227 threshold. Below that threshold no adjustment follows. Above it, the deduction must be adjusted by 9% VAT on the difference.
No extra deduction on building a home because of solar panels
In July 2021 the Supreme Court answered the question whether the taxable operation of solar panels means that part of the VAT on acquiring or building the home they sit on is also deductible. The issue had been on the table for some years.
According to the Court, the person who acquired the home must prove that the acquisition was caused exclusively by the operation of the solar panels. Where the home would have been acquired in any event, even without the panels, operating them gives no extra deduction on the acquisition costs.
On the basis of that judgment it seems all but impossible for anyone to prove that the cost of a home is caused exclusively by operating solar panels. Those costs will normally be caused by private use, that is by living there.
VAT refunds
Bad debts
Reclaim the VAT on bad debts in the return for the period in which it becomes clear the customer will not pay. In any event it can be reclaimed no later than one year after the invoice's due date. Enter the amount as negative turnover and negative VAT at question 1a or 1b.
Discretionary refunds
Where VAT was wrongly or overpaid in the past, or too little was deducted, you can ask the inspector for a discretionary refund through a supplementary return. Where VAT was wrongly invoiced and the customer may have deducted it, the inspector can impose further conditions, such as issuing a corrected invoice without VAT and eliminating the risk of loss of tax revenue.
The small business scheme
The small business scheme allows a small business established or resident in the Netherlands, or with a fixed establishment there, to opt for a VAT exemption without the right to deduct. It is not compulsory. No returns are then needed and record-keeping is limited. Turnover may not exceed € 20,000 in a calendar year.
If you applied the scheme last year, check whether you exceeded that threshold. The scheme is also open to legal persons such as associations, foundations and private limited companies.
A business meeting the conditions may apply the scheme from 1 January 2022 provided it registered at least four weeks beforehand. Registering late means the scheme applies only from the next quarter, that is 1 April 2022. Once chosen, the scheme applies for at least three years, unless you exceed € 20,000 sooner.
Applying the scheme does not trigger an adjustment of VAT previously deducted on capital goods, such as solar panels, where the adjustment for the year comes to less than € 500.
Voluntary registration threshold
For very small businesses not yet registered with annual turnover of no more than € 1,800, it is accepted that they may apply the scheme even without registering. That threshold is intended among others for start-ups and for buyers of an existing home on which the previous owner installed solar panels. Once above the threshold, the business must register and may then apply for the scheme. The threshold applies retroactively to 1 January 2020.
Easier registration for private owners of solar panels
Private individuals who bought panels between 3 December and 1 January were until recently too late to register four weeks before the desired start date, namely the new year. They therefore received another VAT return in the new year, creating an inequality in practice. That has been resolved by a concession allowing them to register as a small business up to and including 31 December of the year of purchase and installation, so also after the four-week deadline.
Margin scheme and tour operators' scheme
A reseller of margin goods or a tour operator determining the margin per period rather than per transaction, under the globalisation scheme, must after the end of 2021 net off the margins for all periods and establish the annual margin. A reseller does so per category of goods, that is separately for goods at 9% and goods at 21%.
Where the annual margin shows that less VAT is due than was paid on the returns, the excess can be reclaimed by written request in the first period after the end of 2021. The inspector then determines the amount by a decision open to objection.
Where the annual margin is negative, the reseller or tour operator receives back, on request, all VAT paid in 2021 on margin sales. Also ask the inspector in writing to fix the annual margin at the negative amount. The advantage is that it can be set off against the positive annual margin for 2022, again per category of goods for a reseller.
Foreign VAT
Foreign VAT paid in another member state in 2021 must be reclaimed by 30 September 2022 through the portal of the Dutch Tax Administration. Note that date now. The authorities forward the request to the member state that must grant the refund.
Calculating the VAT that qualifies requires knowledge of local rules. Requests that are not carefully prepared lead to further questions and therefore delay. A request will also be refused where you should have applied for a VAT number in that member state for a supply.
The VAT return
Adjust your filing frequency if needed
Filing quarterly rather than monthly gives a cash flow benefit where you owe VAT on balance each quarter. Where you are instead due a refund each quarter, for instance because of zero-rated supplies or services to foreign customers, monthly filing is more attractive: you receive the VAT back sooner.
Supplementary returns
Where it emerges in 2021 that too little VAT was paid over the period 2016 to 2021, you must correct the returns concerned with a supplementary return, on pain of a penalty of up to 100%. The supplementary return is filed electronically in the secure environment. A correction of up to € 1,000 to the most recent return may be processed in the final return for 2021.
The tax authorities check annual accounts for outstanding VAT liabilities. Where your accounts show such a liability and you file no supplementary return, you risk a substantial penalty.
A supplementary return can attract a default penalty where it corrects VAT previously understated and paid. Where it is filed voluntarily the inspector imposes no penalty for a deliberate breach. No default penalty is imposed either where the VAT due is € 20,000 or less, or less than 10% of the amount previously paid for that period. Otherwise the default penalty is 5% of the amount due, capped at € 5,514. No default penalty may be imposed where there is no fault at all or the position taken is arguable.
Special deferral of payment
Businesses with payment difficulties caused by the pandemic have been able to apply for special deferral of payment in recent years. That measure was due to end on 1 January 2022 but has recently been extended to at least 1 February 2022. Businesses that were granted deferral earlier and have not yet paid their VAT debt in full now automatically receive deferral again, without reapplying. Those who have paid the debt in full must apply again.
The reduced rate of collection interest stays at almost nil (0.01%) for another six months. It then rises in stages back to the old level of 4%, starting at 1% from 1 July 2022.
Records
Books, documents and other data carriers must normally be kept for seven years. That duty covers the general ledger, sales and purchase invoices, stock records, the sales and purchase administration and so on. For data carriers relating to immovable property the period is nine years after the year of first use. Whether records are on paper or electronic makes no difference.
Old records for which the retention period has expired can be destroyed, unless objection or appeal proceedings for those years are still pending.