VAT advance payment: calculation, deadline and new regulations
How to calculate the VAT advance payment? What is the procedure for online payment? And how to avoid the classic pitfalls about ever-changing deadlines and extensions ?
VAT, value added tax, is a tax collected from companies and paid to the Treasury. And VAT advance payment is a part of the VAT to be paid in advance. Unless you fall under VAT-exempt companies, your business will have to pay the VAT advance.
Whether your company's accounting falls under the simplified system or the ordinary system, the VAT advance payment to be declared must be calculated correctly, according to the accounting requirements 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 to the state a part of the VAT for the following year.
The amount of VAT advance payment is always calculated based on the previous year's accounting records. To determine the amount to be paid to the Internal Revenue Service, there are three separate methods, which we will analyze in more detail below.
The ordinary deadline for paying the VAT advance payment has been set at December 28 of each year.
VAT advance payment: who is liable to pay it?
The VAT advance payment is a tax that must be paid to the state, by the established date, for:
- individuals carrying out activities with VAT registration
- territorial public entities that carry out taxable transactions.
Of course, there are categories that are exempt from paying the VAT advance:
- those who have decided to close their VAT number and subscribe their business to a special regime such as the flat-rate scheme or exempt farmers
- those who opened a business during the current year or settled it before November 30 (for monthly settlement) or September 30 (for quarterly settlement)
- Those who have accounted for a VAT credit of less than 103.29 in the last period of the previous year
Advance payment of VAT: how is it calculated?
To calculate the VAT advance payment, there are three ways approved and recognized by the Internal Revenue Service.
Historical Method
The historical method is the type of calculation favored by businesses. Through this method, the VAT advance payment is accounted for based on the share or advance payment paid for the month or December or the last quarter of the previous year.
This share is calculated on the basis of the following data:
- the periodic settlement 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., haulers)
Then the VAT advance payment corresponds to 88% of this amount calculated and paid in the previous year.
Forecast Method
Also in the forecast method, the VAT advance payment corresponds to 88% of the amount paid. But the period and the data base on which this portion is calculated are different from the historical method.
Under the forecast method, the calculation window for the VAT advance payment is between December 31 of the current year or the last quarter of that year.
For the basis of accounting data, this method makes a distinction based on 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 what will be the VAT for the last quarter of the year.
Analytical Method
The analytical method differs more from the previous two.
Under this method, the amount of the VAT advance payment is equal to 100 percent of the VAT settlement accounted for. Again, the dates and type of contributors contribute to the basis for calculating the amount paid.
In the analytical method, transactions accounted for are taken into account:
- Dec. 1 to Dec. 20 of the current year for monthly taxpayers
- October 1 to December 20 for quarterly taxpayers.
Now that the methods of calculating the VAT advance payment are clearer, we can proceed to the analysis of the deadlines for this tax to be paid to the Internal Revenue Service.
VAT advance payment: when does it fall due?
The ordinary deadline for the 2020 VAT advance payment is December 28. However, new regulations have postponed the deadline to March 16, 2021. The law on this matter is unclear and has raised many doubts about the VAT advance payment for this year. Therefore, we will try to shed some light on the new regulations issued by the Italian state.
VAT advance payment: who is covered by the extension
On November 30, 2020, Article 2 of Ristori Quater Decree No. 157 was approved and put into effect. In light of this new article, the deadlines for VAT, " withholding 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 way to all payments concerning VAT. For this reason, it is hoped that the Internal Revenue Service will provide more clarity on the subject, but the general interpretation of the law is leaning toward an extension extended to the VAT advance payment as well.
Let's, therefore, go through the subjects covered by the extension of the VAT advance payment from December 28 to March 16, 2021.
The activities covered by the extension of VAT advance payment for December are as follows:
- individuals who ended the accounting year with a VAT account showing revenues or compensation of less than 50 million euros in 2019.
- VAT account holders who recorded a decrease in revenue or fees of at least 33 percent in November 2020 compared to the same month in 2019.
- VAT holders who opened a business activity after November 30, 2019, without constraints related to the loss recorded.
- Entities or entities engaged in economic activities suspended under Article 1 of the November 3, 2020, Prime Minister's Decree throughout the country;
- restaurants in the orange zone and red zone;
- entities engaged in 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 as of November 26, 2020.
The payments that were granted an extension must be paid by March 16, 2021. The categories covered by this payment deferral will not incur penalties and will not have to pay additional interest.
They will also have the option of paying in one lump sum or in up to 4 monthly installments.
VAT advance payment: payment methods
Now that we know how to calculate the VAT advance payment and what the deadlines are, it only remains for us to pay it. But what are the modalities?
The payment process is very simple and clear: you have to pay the VAT advance payment by filling out the F24 form, available online.
Depending on the type of periodic settlement, there are two different codes:
- tax code 6013 for monthly settlement
- tax code 6035 for quarterly settlement.
The VAT advance payment 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 liquidation:
- December's for monthly liquidation
- Of the annual VAT return for quarterly liquidation
- Of the fourth quarter for special quarterly
Penalties for non-payment of VAT advance payment
What if the VAT advance payment is not paid? Or a late payment has occurred?
Your company may face a fine of up to 30 percent of the amount due plus interest.
There is, however, a way to avoid these penalties through the method called a tax amends, which is represented by code 8904. This option provides a reduced rate calculated according to the number of days between the due date and the actual payment.
As we have seen, the VAT advance payment can be a complicated topic mainly because of the new unclear regulations. However, now you all know the deadlines and how to pay the VAT advance payment on your annual tax return so you won't be mistaken.
If you still have any questions, please feel free to ask them.
Article translated from Italian