VAT advance payment: calculation, deadline and new regulations
How to calculate the VAT advance? What is the procedure for online payment? And how to avoid the classic pitfalls of ever-changing deadlines and extensions?
VAT, value added tax, is a tax collected by companies and paid to the Treasury. And the VAT advance payment is a part of the VAT to be paid in advance. Unless you are a VAT-exempt company, your company will have to pay VAT on account.
Whether your company's accounting falls under the simplified or the ordinary system, the VAT advance to be declared must be calculated correctly, according to the accounting obligations to be met.
In our article, we will address all these points precisely in order to help you better understand the VAT advance payment.
VAT advance payment: what it is
As we have mentioned, the VAT advance payment consists of paying the state a part of the VAT for the following year.
The amount of the VAT advance is always calculated on the basis of the previous year's accounting documents. To determine the amount to be paid to the tax authorities, there are three separate methods, which we will analyse in more detail below.
The ordinary deadline for payment of the VAT advance is 28 December of each year.
Advance payment of VAT: who is liable to pay it?
The VAT advance payment is a tax that must be paid to the state, by the set date, for
- persons carrying out activities with a VAT registration number
- public bodies carrying out taxable transactions
Obviously, there are categories that are exempt from paying the VAT advance:
- those who have decided to close their VAT number and subscribe their activity to a special scheme such as the flat-rate scheme or exempt farmers
- those who opened a business during the current year or settled it before 30 November (for monthly settlement) or 30 September (for quarterly settlement)
- those who have accounted for a VAT credit of less than 103.29 in the last period of the previous year
VAT advance payment: how is it calculated?
To calculate the VAT advance payment, there are three methods approved and recognised by the Inland Revenue Service.
Historical Method
The historical method is the type of calculation favoured by businesses. Using this method, the VAT advance is calculated on the basis of the quota or advance payment made for the month or December or the last quarter of the previous year.
This quota is calculated on the basis of the following data
- the periodic payment for December of the previous year, if we consider monthly taxpayers;
- the debit amount appearing on the VAT return for the year 2019, if we consider ordinary quarterly taxpayers;
- the periodic settlement of the fourth quarter of the previous year, if we refer to special quarterly taxpayers (e.g. hauliers)
Thus, the VAT advance is 88% of this amount calculated and paid in the previous year.
Forecast Method
Also in the forecasting method, the VAT advance payment corresponds to 88% of the amount paid. But the period and the data base on which this quota is calculated are different from the historical method.
Under the forecasting method, the calculation window for the VAT advance is between 31 December of the current year or the last quarter of that year.
For the accounting data base, this method makes a distinction according to the type of taxpayer:
- monthly taxpayers consider the VAT they will have to pay for the month of December;
- ordinary quarterly taxpayers will be based on the annual VAT return;
- so-called 'special' quarterly taxpayers will refer to the VAT for the last quarter of the year.
Analytical Method
The analytical method differs more from the two previous methods.
With this method, the amount of the VAT advance is equal to 100 per cent of the VAT settlement recorded. Again, the dates and type of contributors contribute to the basis for calculating the amount paid.
In the analytical method, accounted transactions are taken into account:
- 1 to 20 December of the current year for monthly taxpayers
- from 1 October to 20 December for quarterly taxpayers.
Now that the methods of calculating VAT advance payment are clearer, we can proceed to an analysis of the deadlines for this tax to be paid to the Inland Revenue.
Advance payment of VAT: when does it expire?
The ordinary deadline for the 2020 VAT advance payment is 28 December. However, new regulations have postponed the deadline to 16 March 2021. The law on this matter is unclear and has raised many doubts on the payment of the VAT advance for this year. We will therefore try to shed some light on the new regulations issued by the Italian state.
VAT advance payment: who is covered by the extension
On 30 November 2020, Article 2 of the Ristori Quater Decree No. 157 was approved and implemented. In light of this new article, the deadlines for VAT, ' withholding taxes and contributions in December' are subject to extension.
Of course, the VAT advance payment is not specifically mentioned in the article, but it is thought that this law refers in an all-inclusive manner to all VAT payments. For this reason, it is hoped that the Inland Revenue will provide more clarity on the subject, but the general interpretation of the law inclines towards an extension extended to the VAT advance payment as well.
Let us therefore analyse the subjects covered by the extension of the advance payment of VAT from 28 December to 16 March 2021.
The activities covered by the extension of VAT advance payments for the month of December are as follows:
- persons who ended the accounting year with a VAT account showing revenue or remuneration of less than EUR 50 million in 2019.
- VAT account holders who recorded a decrease in revenue or fees of at least 33% in November 2020 compared to the same month in 2019.
- VAT holders who opened a business activity after 30 November 2019, with no restriction on the loss recorded.
- entities or persons carrying out economic activities suspended pursuant to Article 1 of the Prime Ministerial Decree of 3 November 2020, throughout the national territory;
- restaurants in the orange zone and in the red zone;
- entities carrying out activities included in the list of ATECO codes in Annex 2 of the Ristori quater bis decree;
- travel agencies, tour operators or hotels in the red zone on 26 November 2020.
The payments for which an extension has been granted must be paid by 16 March 2021. The categories covered by this deferral of payment will not incur penalties and will not have to pay additional interest.
They will also have the option of paying in a single payment or in up to four monthly instalments.
VAT advance payment: payment methods
Now that we know how to calculate the VAT advance and what the deadlines are, all that remains is to pay it. But what are the modalities?
The payment process is very simple and clear: you have to pay the VAT advance by filling in the F24 form, available online.
Depending on the type of periodic payment, there are two different codes
- tax code 6013 for monthly settlement
- tax code 6035 for quarterly payment.
The VAT advance paid is, therefore, paid through the total amount due to taxpayers. Again, the sum of taxpayers to be taken into account changes according to the type of settlement:
- of December for monthly settlement
- of the annual VAT return for quarterly settlements
- of the fourth quarter for special quarterly
Penalties for non-payment of VAT advance payment
What if the VAT advance is not paid? Or a late payment has occurred?
Your company may face a fine of up to 30% of the amount due plus interest.
There is, however, a way to avoid these penalties through the method known as the voluntary reprimand, which is represented by code 8904. This option provides for a reduced rate calculated according to the number of days elapsed between the due date and the actual payment.
As we have seen, the advance payment of VAT can be a complicated topic mainly due to the new unclear regulations. However, you now know all the deadlines and how to pay the VAT advance in your annual tax return so that you will not be mistaken.
If you still have questions, please do not hesitate to ask.
Article translated from Italian