VAT Transfer costs and parking
Tuesday, November 1st, 2016 by Arnold Waal
VAT transfer costs and parking is a subject that comes alive from time to time and when it does, it is nearly always treated incorrect.
What is the case?
If you work for a client, you make costs. Can be any costs from purchasing paper for your printer, to parking the car at the place of your client.
Some entrepreneurs have these costs not included in their fee and charge the client with costs, such as parking costs.
Here it can go wrong.
The hours spend on the client is charged at hourly rate times hours. At the bottom of the invoice 21% Value Added Tax (VAT) is added to the invoice and the client pays. If the client is charged with costs, often we see that these are added to the invoice at the bottom after the 21% VAT has been calculated.
How is VAT calculated?
VAT is due over the total value of the invoice, including costs charged, unless transfer costs are involved.
Transfer costs and VAT
What are transfer costs? Transfer costs are costs made in name of the client which can therefore be charge to the client without VAT.
The example in this field is the building permit. A contractor who applies for a building permit will always be granted the building permit in the name of the owner of the building, being his client. That implies the contractor actually paid a cost that was charged to the client, so the contractor can invoice the client this building permit cost at no VAT.
VAT transfer costs and parking
What we see happen a lot are contractors parking the car near the sight of the client, pay parking costs and charge them to the client without VAT. So you find the parking costs on the invoice under the VAT calculation. That is incorrect. When I contact such a contractor, the reply is that the parking costs are tax, local tax that is charged as parking costs by the city, hence no VAT due.
That is not a valid argument, that is a silly argument.
Parking in the Netherlands is done using the license plate number. Only if you drove the car of the client, hence for his license plate number you paid the parking costs, then you can charge the parking costs without VAT. But that never happens, hence it is their own car or company car, so the parking costs should be charged plus VAT.
You might think that is a small annoyance, but wait till you learn about the Dutch parking costs. If you are the company making the incorrect invoices and the tax office makes a correction over a five year period plus 25% penalty, you soon learn it is not a small annoyance.
For the accountant of the client that is wrongly invoiced it is a small annoyance as each time the invoice is booked the VAT amount does not match.
Orange Tax Services
We are the accountant booking these invoices. If our client makes such invoices, we soon contact him or her to explain how invoices are made. If another party provides such invoices to our client, we sometimes contact them, but often our effort is disregarded, even though it is a true mistake in the invoice. The penalty of a mistake in the invoice is substantial per wrong invoice.