Year-end VAT tips 2022
Which items belong in your final VAT return of the year? We set out the points to watch, highlight a number of developments from 2022 and run through the changes for 2023.
2022 is almost over and 2023 is approaching, which means the VAT return for the final period is due again. Below you will find the items to include, a number of year-end tips and the main changes for next year.
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.
More detail on the requirements
In February this year the Supreme Court ruled on the conditions for a VAT group. Domestic entities that are legally independent but closely linked financially, economically and organisationally are treated together as a single taxable person. The Court builds on a leading judgment from 1989: the links must be assessed in conjunction with one another.
Organisational links require the entities to be under joint management, or at least management functioning as a unit. The Court clarifies that this management need not rest with one person: it can also exist where the parties have such close ties in governance and management that they run the business together. That can arise in particular with complementary activities, where one entity's activities are carried out solely for the other. Where the parties are closely linked financially and economically, merely non-negligible organisational ties are not enough.
On financial links the Court repeats its settled line: at least a majority of the shares, including control, must be directly or indirectly in the same hands. Whether that still accords with European case law is questionable. In December this year the Court of Justice held that subordination is not required, so a holding company need not have a majority of the voting rights alongside a majority of the shares. The Supreme Court's line therefore looks somewhat strict.
What the VAT group decision means
The Supreme Court also clarified the significance of a VAT group decision. It serves legal certainty: a taxable person cannot be treated against their will as part of a group for the period before the inspector made his position known. That certainty does not extend so far, however, that a group can come into being without the substantive conditions being met. In certain cases the taxable person can rely on the legitimate expectation created by the decision, provided they supplied all the necessary and correct information beforehand.
Did you receive a decision after agreeing the position? Check regularly whether the underlying facts are still the same, because a change can bring the group to an end. If you received a decision without the facts being explained, you cannot rely on legitimate expectations and you risk the group turning out not to exist after all.
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 2023, 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 2022 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.
Clarity on the essentially new build test
The supply of buildings is taxable where it takes place no more than two years after first use. A building becomes new again where extensive conversion has produced a manufactured item, in other words essentially new construction.
In November 2022 the Supreme Court provided clarity: only changes to the structural construction matter, including replacement of part of it. Whether that is the case must be assessed on all the circumstances, and according to the Court it will not readily be so. Other factors, such as a change of function, structural identity, the scale of the investment and the value added, can be indications, but are not necessary and not decisive.
Rates
Zero rate for solar panels on or near homes
From 1 January 2023 a zero rate applies to the supply or installation of solar panels on or near homes. A home includes an associated garage, extension or shed, and purchases by a residents' association for an apartment block are covered too.
The measure is aimed above all at reducing the administrative burden on the tax authorities and on private owners. There is no longer any VAT for private individuals to reclaim, and because most stay below the registration threshold on the electricity they feed back, registration can be avoided.
Higher transfer tax
The general rate of 8% rises to 10.4% on 1 January 2023. It applies to acquisitions of all non-residential property, such as offices and business premises, and to homes the acquirer does not occupy as their main residence. Property investors in particular will pay more.
International transactions in goods
Invoices under simplified triangulation
In ABC transactions where goods go directly from supplier A in one member state to customer C in another, simplified triangulation can apply subject to conditions where intermediary B has no VAT number in C's member state.
Under that scheme B need not declare an intra-Community acquisition in the member state of destination, nor does it face a number acquisition in the member state of the VAT number under which it bought from A. The VAT in C's member state is also reverse charged to C, so that B need not register there.
The Court of Justice recently held that the scheme can only be applied where B's invoice to C states "VAT reverse charged". That line is stricter than current Dutch policy, so include that wording from now on.
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 2022, 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 2022 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. 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 2022, 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.
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.
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.
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 2023 provided it registered at least four weeks beforehand. Registering late means the scheme applies only from the next quarter, that is 1 April 2023. 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.
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 2022 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 2022. 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 2022 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 2023, again per category of goods for a reseller.
Foreign VAT
Reclaim UK VAT before 31 December 2022
Until 31 December 2022 you can still reclaim UK VAT for the period 1 July 2021 to 30 June 2022. Since 2021 this can no longer be done through the electronic portal. The request must be submitted to HMRC in writing using form VAT65A.
Reclaiming foreign VAT
Foreign VAT paid in another member state in 2022 must be reclaimed by 30 September 2023 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 2022 that too little VAT was paid over the period 2017 to 2022, 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 2022.
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.
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. A digital platform such as Amazon that facilitates sales to non-taxable persons within the EU must keep records of those sales for ten years after the end of the year of sale. 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.