What is value added tax?
Value added tax is an indirect tax levied by the federal government on the sale of goods and services. It is paid by consumers, but collected by companies and remitted to the state. The purpose of value added tax is to tax consumption and contribute to the financing of public expenditure.
Value added tax is applied in most countries worldwide, with the exact rates and regulations varying from country to country.
- In Switzerland, the standard rate for goods and services is 8.1%,
- while there is also a special rate for accommodation including breakfast of 3.8%
- and a reduced rate for goods for daily consumption of 2.6%.
VAT liability
Not all companies are required to account for value added tax. In Switzerland, companies are subject to VAT if their annual turnover reaches CHF 100,000. They must register online with the Federal Tax Administration and will then receive their VAT number.
Freelancers and small businesses may be exempt from VAT liability if their annual turnover is below the defined threshold. This can be a relief, as they do not have to show VAT on their invoices and do not have to make VAT payments.
VAT return
The VAT return is the process by which companies determine value added tax and settle it with the Federal Tax Administration (FTA). It is important to carry out the return correctly in order to avoid financial and legal consequences.
When completing the VAT return, companies must declare the turnover on which they have charged value added tax as well as the input tax they have paid on business expenses. The difference between the collected VAT and the paid input tax results in the VAT payable or refundable.
Each company must decide whether it accounts for VAT based on agreed consideration or collected consideration. The standard procedure of the Federal Tax Administration is accounting based on agreed consideration. In this case, VAT becomes due as soon as the company issues an invoice for its services.
Under the method based on collected consideration, VAT only becomes due upon receipt of payment, meaning as soon as the customer pays the invoice.
To carry out the VAT return correctly, an accurate overview of income and expenses is required. This requires proper bookkeeping, and the use of accounting software can significantly facilitate this process.
Value added tax in accounting
Value added tax affects the accounting of companies. When recording VAT payments and refunds, companies must maintain the appropriate accounts and records.
VAT payments are generally recorded as liabilities, while VAT refunds are treated as receivables. It is important to manage these accounts properly and record the corresponding amounts in the accounting system.
Value added tax also affects other aspects of accounting, such as the profit and loss statement and the balance sheet. Companies should ensure that they integrate VAT into their accounting processes and take the relevant effects into account.
VAT returns with Bexio and others
Manual accounting for value added tax can be time-consuming and prone to errors. Therefore, more and more companies are opting to automate this process.
Automating VAT returns offers a range of benefits. It reduces human error, optimizes the process, and saves time and resources. By using accounting software, companies can manage VAT returns more efficiently and ensure that all legal requirements are met.
A popular accounting software that supports companies with VAT returns is bexio.
Bexio offers a user-friendly interface and specific functions for correctly accounting for value added tax.
With bexio, companies can record their income and expenses, calculate value added tax, and generate the required reports and returns. The software automates many tasks and simplifies the entire VAT return process.
Using bexio can help companies save time, avoid errors, and ensure correct VAT accounting.
Common errors in VAT returns
Errors in calculating value added tax or in recording income and expenses can sometimes occur. It is important to keep accounting records carefully and review the data regularly in order to identify and correct such errors.
Another error is improper documentation. Companies must properly retain all relevant invoices, receipts, and supporting documents in order to provide evidence if required.
To avoid errors in VAT returns, it is advisable to familiarize yourself with the applicable regulations and rules and, if necessary, seek professional support. Accounting software such as bexio can also help reduce errors and improve the accuracy of VAT returns.
