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Filing a VAT return for a refund can cause an audit

Filing a VAT return (Value Added Tax return) resulting in a refund, can cause an audit we noticed over the past couple of weeks. Is this a problem?

Filing a VAT return

A business doing well often has more turnover than costs, shown in the VAT return. The turnover is subject to VAT that needs to be paid to the tax office. The costs included VAT you paid to another entrepreneur, that you can claim back from the Dutch tax office. If the turnover is higher than the costs, you have to pay VAT to the Dutch tax office.

Example

You have a EUR 10.000 turnover plus 21% VAT is EUR 12.100 turnover. The 21% being EUR 2.100 you need to pay to the Dutch tax office. To create this turnover you made EUR 2.420 costs that included EUR 420 VAT. This amount is claimed back in the VAT return, hence you pay EUR 2.100 minus EUR 420 is EUR 1.680 to the Dutch tax office.

Startup company and VAT

A startup company often struggles to get enough turnover, but is making regular costs to be able to present itself. In such a situation the turnover could be EUR 2.420, the costs EUR 12.100 and then in the VAT return the tax office pays the company EUR 1.680 VAT.

Covid19, VAT and audit

Covid19 makes that business is not good for everybody. Somebody could think that a VAT refund from the tax office might help paying the costs better. Even when the company is not entitled to a refund or such a high refund. We think, but we have not evidence, that such fabricated VAT returns have triggered the Dutch tax office.

We have been contacted by the Dutch tax office frequently recently where we were informed that the system pulled out a refund VAT return for audit. New policy.

Filing a VAT return for a refund can cause an audit
Filing a VAT return for a refund can cause an audit

VAT refund reason for an audit?

We disagree that a VAT refund should trigger the tax office to audit the company. At the same time we understand their position.

Why do we disagree? Well, we have a substantial number of clients that simply do not do business in the EU. If business is done outside the EU, like now with the United Kingdom, then the VAT on the invoice is out of scope. Out of scope VAT is not part of the VAT return, but the rent costs with VAT and other costs with VAT are part of the VAT return. That results in a refund, and now results in an audit.

Why do we understand the audits? The Dutch tax office needs to protect the largest source of tax income from erosion by non-complying tax payers. That is part of the game.

Is an tax audit a problem?

We think an audit by the Dutch tax office is not something you should volunteer for. But if you are up to be audited, we have good faith it will work out. In the past audits have also contributed to a learning curve. With every audit we hope that such learning curves were indeed in the past.

Tax is exciting

We think tax is exciting. We are not so excited about audits by the Dutch tax office. Maybe you should see such an audit as a school exam. Then it is learned if you paid attention when the teacher/bookkeeper was instruction you.

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