All you need to know about input VAT - Accounting & Reporting

Many entrepreneurs find VAT and VAT calculation complicated. However, if you're running a business, it's essential to get to grips with it, as VAT has to be declared to the government. Here we go through everything you need to know about what input VAT is and how to record and report it. We also cover related factors to make it easier to understand.

What is input VAT?

VAT is a value added tax imposed on goods and services. Input VAT is the VAT that a business pays on services and goods it purchases. This is the VAT that the business is entitled to recover if it exceeds the output VAT.

Input versus output VAT

As mentioned above, input VAT is what the business itself pays when purchasing products and services. Output VAT is what the business then adds to the price of the goods or services it sells to customers.

An easy way to remember what type of VAT is involved is to think about how invoices are sent. When you make a purchase for your company, the seller sends an invoice (input VAT). If a customer buys, your company sends out an invoice (output VAT).

If you are unsure about bookkeeping and handling VAT, it is recommended that you contact an accounting consultant. If you still want to do it yourself, it's a good idea to invest in a good accounting program that makes managing input and output VAT easy.

Percentages for VAT

Depending on the goods you buy or sell, there may be different rates of VAT. In Sweden, there are three rates of VAT.

1. 25% - the most common VAT rate applied to most goods.
2. 12% - a VAT rate used for example on food, hotels and restaurant services.
3. 6% - a VAT surcharge used for parts of culture, travel, sport, books and newspapers.

Example of input VAT calculation

Let's say the VAT rate is 25%. The total price of the goods is SEK 10 000 x 1.25 = SEK 12 500. To get the input VAT, you can either calculate the difference 12 500 - 10 000 = 2 500 or you can take the price without VAT and multiply 10 000 x 0.25 = 2 500.

Example of calculation of output VAT

If you want to know how much VAT is added to a product, you have to calculate the VAT backwards. Let's say the price including VAT is SEK 250 and we again use the most common VAT rate of 25%, you would calculate it as follows: SEK 250/1.25 = SEK 200. The share of VAT is then SEK 250 - SEK 200 = SEK 50.

Note that not all goods are subject to VAT. For example, medicines on prescription or sold to hospitals, ships for commercial shipping and real estate. Some advertising is also exempt from VAT, such as in membership magazines. However, there is VAT on advertising that can be considered advertising. The VAT rate is 25%.

What is reverse charge VAT?

The concept of reverse VAT, also known as reverse charge, is when VAT reporting is reversed for output VAT. This means that it is the buyer rather than the seller of the goods or services who must declare the VAT. The aim is to combat VAT fraud and to simplify international trade between businesses. Reverse charge applies in a number of sectors in Sweden as well, such as construction. You must always include reverse charge VAT in your accounts, even if the VAT is fictitious.

Management of input VAT in the accounts

You must always record all VAT, both output and input VAT, in the account for each type of VAT. You record the output VAT as a liability to the Swedish Tax Agency, while you must record the input VAT as a receivable, i.e. an input VAT debit.

It is important to record VAT payments correctly to know if you can either get a refund or if you have to pay what you owe to the tax authorities. You calculate this in your VAT return.

Information to be provided in the VAT return

In your day-to-day accounting, you collect all the information that you are required to report in the VAT return. Among other things, you must provide information on:

1. Company sales
2. Output VAT on what you sold
3. Input VAT on what you bought

It is then the difference between the output VAT and the input VAT in the VAT statement that shows whether you have to pay tax or whether you will get a VAT refund.

However, there are some exceptions where you are not entitled to claim VAT, even if it has been an expense for the business, for example:

1. Purchase of a passenger car, even if it is registered in the business. However, this does not apply to activities such as driving schools or taxi companies where the car is required for the VATable activity.
2. Expenditure on buildings used both as business premises and as a permanent residence.

Accounting for input VAT

VAT must be declared as monthly VAT (every month), quarterly VAT (every three months) or annual VAT (once a year). The frequency of reporting depends on how high your company's turnover is. The higher the turnover, the more frequently you have to account for VAT. The accounting is always done as a VAT return and you can choose to do it on paper or electronically.

The VAT return is mandatory even if the company has no turnover for a month. You still provide the information mentioned above, i.e. sales, output VAT and input VAT, even if some items are zero.

Make VAT management easier with Mynts business card

For those who find bookkeeping and VAT calculations complicated, the Mynts business card may be a good choice. As well as flexible credit and the ability to set individual purchase limits, the card offers many other benefits, including easy linkage to your accounts - simple and effective for all your business expenses. A practical advantage of the company card is also the simplified VAT calculation that is done automatically when you enter and categorize your expenses. So take the next step towards more efficient accounting and get the Mynts business card today.