Understanding VAT
What VAT is, the difference between collected, deductible and due VAT, and why several rates exist.
Presentation
VAT (value added tax) is a tax you collect FOR the state. This money is not yours: you collect it on your sales, you pay it on your purchases, and you remit the difference to the state.
Three notions to remember: (1) COLLECTED VAT, the one you charge your customers on your SALES; (2) DEDUCTIBLE VAT, the one your suppliers charge you on your PURCHASES; (3) VAT DUE (to remit) = collected VAT minus deductible VAT. Only this difference is what you actually pay to the state.
Why SEVERAL rates: the law sets different rates depending on the product type (for example a standard rate, and a reduced rate for food). The same business can therefore have several rates at once. That is why the rate is chosen PER LINE (on each sale and each purchase), not once for the whole company.
Access
The default VAT is set in Settings > Company ("Default VAT" field). The VAT summary (collected, deductible, due) is available in the Accounting section.
Interface
- Default VAT (Settings > Company): The rate proposed automatically on each new purchase line. Set it to the rate you use most often.
- Per-line VAT rate: On each purchase (and sale) line, an editable percentage field. It starts from the default VAT but stays adjustable if the item has a different rate.
- Net / VAT / Gross: Net = before tax (price before VAT). VAT = the tax amount. Gross = tax included (Net + VAT). These totals are computed by the server; you have nothing to calculate.
Step-by-step procedure
- Action: Set your default VAT: open Settings > Company and enter the most common rate for your business (for example 20). Result: All new purchase lines will automatically start from this rate.
- Action: When making a purchase (or a sale), check the pre-filled rate on each line and adjust it only if the item falls under a different rate. Result: Each line VAT exactly reflects the reality of the transaction.
- Action: Check your VAT due in the Accounting section. Result: The application computes collected VAT minus deductible VAT: you know exactly how much to remit to the state.
Examples
[simple] A simple sale: You sell an item at 120 gross with 20% VAT. The net price is 100, the collected VAT is 20. These 20 are not your margin: it is VAT you keep for the state.
[intermediate] Monthly VAT due: Over the month, you collected 500 of VAT on your sales and paid 300 of VAT on your purchases. You remit to the state 500 minus 300 = 200.
[advanced] A mixed-rate basket: A single invoice can mix a product at 20% and a food product at 5.5%. Each line keeps its own rate, and the total adds both VAT amounts. That is why the rate lives on the line, not on the company.
Edge cases
If your deductible VAT (purchases) exceeds your collected VAT (sales) over the period, the VAT due is negative: it is a VAT credit in your favour (you owe nothing, the state owes you).
Some products or operations are exempt or at 0%: simply set the rate to 0 on the relevant line.
If a rate changes by law, the application can keep rates by effective date: a past transaction keeps the rate in force at its date.
The default VAT applies only to NEW lines: purchases already recorded keep the rate entered at the time.
Tips
- Set as default VAT the rate you use most often: you save time and avoid omissions.
- Always enter the rate actually shown on the supplier invoice: it determines your deductible VAT, hence what you remit.