VAT under control? SMEs must pay attention to these 10 points
VAT accounting is one of the most complicated administrative tasks for SMEs. With these ten points, you’ll be on the safe side and always have an overview.
Value added tax (VAT) is probably the best known and most feared indirect tax in the Swiss tax mix among Swiss SMEs. As a so-called consumption tax, VAT taxes the consumption of various goods and services. The VAT is settled by the producers or service providers, such as SME companies, which have to pass on the VAT to the end consumers.
The VAT practice is very lively, which is reflected by the frequent changes in the VAT law or the publication of new industry brochures or VAT info sheets. Therefore, in case of VAT problems, it is important to consult a trustee or an expert who regularly deals with the changes in the VAT law or the VAT practice and can therefore provide situational and customer-specific help. In addition, you can use accounting software such as KLARA, which supports you in the accounting of VAT with a simple click of the mouse.
Below you will find the 10 most common stumbling blocks in the application of VAT in SME businesses – followed by tips to overcome the problems.
1. VAT obligation yes or no? When and how do I register?
Especially very small companies usually clarify the VAT obligation much too late, for example after the first business transaction has been prepared. Actually, this question must already be checked during the first three months of business activity. According to the legal regulations, you are liable to pay VAT if you operate a business and generate an annual turnover of at least CHF 100,000 from taxable services. This turnover limit is calculated on the basis of invoiced services excluding value added tax. If it is not yet known at the start of the business activity whether you will achieve this annual turnover limit, a reassessment of the VAT obligation must be made after three months. Often, when a new company is founded, large investments are made on which input taxes are charged, which require an early registration of the VAT obligation.
The registration of the VAT obligation is carried out via the website of the Swiss Federal Tax Administration (FTA). Furthermore, it is necessary to check which accounting method (effective accounting or balance tax rate) is the most suitable for the company. The confirmation of the entry in the VAT register by the FTA must be kept for a long time.
2. The right accounting program facilitates VAT accounting
There are various accounting programs available on the Swiss market, which vary greatly in terms of complexity as well as price-performance ratio. It is necessary to purchase the accounting program that performs best in terms of VAT complexity and, above all, user-friendliness. Your fiduciary will be able to help you with his experience. An efficient accounting program and the correct VAT coding will save you a lot of trouble when accounting for VAT.
3. Correct invoicing of customers and suppliers
In addition to the correct VAT number, invoicing must also comply with other formalities, which are listed in VAT Info 16. Supplier invoices must be checked and objected to if they do not comply with the VAT conditions. Only in this way is the input tax deduction legitimate under tax law.
4. Input tax deduction and correction
The input tax on supplier invoices incurred in the course of business activities can, in principle, be deducted from VAT. It is necessary to make sure that the supplier is actually registered in the VAT register. This is often not the case when purchasing services from one-person businesses. Input taxes also include the import tax payable by the Federal Customs Administration on the import of goods. The VAT Act also recognizes services that are exempt from tax, such as services in the field of education or culture, or in the field of monetary or capital transactions. If expenses are incurred to obtain such services, the input tax incurred as a result cannot be deducted. If a VAT-liable company uses input tax-burdened services also for non-business purposes, or partly for business and partly for non-business activities, the input tax must be adjusted according to the use. In this regard, the VAT Act offers various options, which can be found in VAT Info 9. In principle, such input tax corrections must be declared under item 415 of the VAT form.
5. Watch out for purchase tax
Companies subject to VAT in Switzerland that purchase services from companies domiciled abroad that are not taxable in Switzerland are subject to purchase tax. This includes, for example, services provided by consultants, asset managers, trustees or in the field of advertising. For companies that are subject to VAT, the purchase tax is declared as remuneration in the VAT statement and can also be deducted as input tax if the conditions are met. This also applies to private individuals, as service recipients, if they purchase more than CHF 10,000 of services in a calendar year. If this is the case, the private individuals must notify the FTA in writing. More information about VAT on services abroad can be found here.
6. Do not forget to account for private services
Companies that provide their employees or related persons with goods or services for private use must account for the corresponding private portions. When receiving such benefits, the FTA uses the salary statements as a guideline, on which these benefits must be declared. These benefits include, for example, board and lodging, company cars or other fringe benefits that are not paid in cash. The settlement of private shares must be made at least once in the calendar year or quarterly. It is advisable to check before the end of the year whether all private shares on the fringe benefits have been settled. Correct VAT coding as well as keeping separate accounts for such benefits facilitates monitoring. Further information can be found in VAT Info 8.
7. Year-end VAT work
Year-end VAT work is important for any financial statement preparation. This year-end work includes the sales reconciliation and the input tax reconciliation. In the reconciliation of sales, the sales recorded in the fiscal year are compared with the sales declared in the VAT statement. The input tax reconciliation is mainly concerned with reconciling the settled input taxes with input tax accounts. If this results in differences, these can be reported to the FTA and corrected using the “VAT annual reconciliation” form. The relevant forms are available on the FTA website.
8. Deadlines must be observed
The submission of the VAT statement and the payment of the tax debt must always be made no later than two months after the end of the quarter or semester. If this deadline is not met, interest on arrears is due from the first day. It is recommended that these deadlines are generally adhered to. The figures of the VAT statement to be submitted must also be reconciled with the figures from the quarterly accounts. If, due to time constraints, the accounting for the VAT statement cannot be completed in time, the VAT statement can be submitted with provisional and partially estimated figures. After the bookkeeping has been updated, the differences can be declared with a correction statement or with the annual reconciliation. The “VAT annual reconciliation” must be submitted to the FTA by 31.8. of the following year. From then on, the accounts are considered finalized. Current VAT practice shows that the annual reconciliation can also be submitted to the FTA later and the FTA must take it into account ex officio up to 5 years back.
More information on the VAT deadline extension is available here.
9. Settle VAT online
Since 2021, electronic VAT invoicing has been the standard: the Federal Tax Administration will only send conventional invoices by post upon written request. Companies subject to VAT can use the “VAT statement easy”. From now on, all SMEs concerned can settle their VAT electronically without opening an online account with the FTA. The variant with the account is more advantageous because corrections, extensions of deadlines, etc. can also be submitted. In addition, the transmission of data directly from the accounting software is not possible with the simple variant without an account.
You want to declare your VAT without an FTA account in the future? Nothing could be simpler:
- Go to www.estv.admin.ch.
- Click on “VAT declaration without account” and then on the login.
- Enter your Swiss cell phone number and log in with the security code you received by SMS.
- Type in the individual billing code you received from the FTA.
- Now you can fill in the online form – just like you used to do it on paper.
- The tax amount will be calculated automatically.
- With one click you have submitted your VAT statement.
You can find more information about accounting without an account and how your fiduciaries deal with the new accounting method in this video.
10. VAT control – what now?
VAT is a so-called self-assessment tax. This means that the taxpayers themselves are responsible for the correct application of the tax regulations. For this reason, the FTA periodically carries out VAT controls. As a rule, the VAT control is carried out retroactively for a period of 5 years. The auditor will contact you in good time to arrange an appointment for the VAT audit. This is followed by a written confirmation of the control with detailed information on the files to be prepared, the periods audited and other information. In addition to the required accounting documents, it is advisable to provide the following files:
- VAT detail lists from the accounting program (validation, settlement, …)
- Sales and input tax reconciliation
- Annual reconciliation
- Details of the private shares accounted for
- Other specific VAT information
For the auditor, the first impression is important and can influence a VAT audit accordingly. The trustee/tax advisor is happy to prepare and accompany the VAT audit.
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