The introduction of the Value Added Tax in 1954 ensured continuous tax revenues in France. This tax generates almost half of state revenue. Easy to understand for consumers, its passage through company accounts can leave managers and entrepreneurs in difficulty.
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How to distinguish between VAT collected, VAT deductible, VAT payable and VAT credit?
Principles and mechanisms of VAT
VAT is an indirect tax on the consumption of goods and services, used or consumed, on French territory. It is said to be indirect because it is not collected directly by the State. It passes through businesses. These charge VAT on their sales, which will then be paid to the Public Treasury. However, the law provides for a certain number of exemptions or optional taxation. This can make the accounting management of VAT complex. Making use of the 1099 tax calculator is essential there.
There are four VAT rates in France:
- The normal rate at 20%
- The intermediate rate at 10
- The rate reduced to 5.5%
- The particular rate at 2.1
VAT accounting registration accounts
On the accounting software, VAT is found in subdivision 445 of the chart of accounts (State – Turnover taxes). And more particularly:
- Account 4455: VAT payable
- Account 4456: deductible VAT accounting
- Account 44562: deductible VAT on fixed assets
- Account 44566: deductible VAT on other goods and services
- Account 4457: VAT collected
- Account 44567: VAT credit
- Account 4458: VAT to be regularized
What is the VAT collected?
During a sale, the company invoices the price excluding VAT of the product as well as the VAT. It collects the amount of this for which it will be liable to the Public Treasury.
- X runs a DIY store. He sells several square meters of carpets, the price of which is € 1,000. The standard 20% VAT rate applies.
- The price is then increased by 200 €. The amount including tax is € 1,200. These € 200 were collected by Mr. X and will have to be donated to the State.
What is deductible VAT?
When purchasing within the framework of its professional activity, the company pays VAT to its supplier. This amount paid corresponds to a recoverable VAT which will be deducted from the VAT payable. However, it is important to note that deductible VAT only applies to business expenses. A passenger car will be subject to non-deductible VAT, except in specific cases.
Madame Y creates leather goods. It obtains its raw materials from suppliers. She buys several meters of leather at the price of 500 € HT. Subject to the standard rate of 20%, VAT amounts to € 100 for a total cost of € 600 including tax. These 100 € of VAT were paid by Mrs Y to her supplier. They will therefore be deducted from the VAT that it will have collected.