What happens to unpaid invoices during the VAT return?
For many entrepreneurs, the quarterly VAT return is a routine task. Every quarter, they dutifully file their VAT returns (omzetbelasting, as it is officially called in the Netherlands). But how do you handle unpaid invoices when filing your VAT return? In extreme cases, these debtors can cause serious problems for your VAT reporting.
The invoice date is sacred
In a VAT return, the difference between the VAT received on sales invoices and the VAT paid on incoming invoices is calculated. But when does an invoice count toward your VAT return? Is it the moment it was sent, or the moment the payment was received?
There are two methods: the cash basis (kasstelsel) and the invoice basis (factuurstelsel). With the cash basis, turnover is reported the moment the money arrives. With the invoice basis, the payment status is ignored, and the invoice date is sacred.
In the Netherlands, most companies are required to use the invoice basis. This means that when filing your VAT return, the payment status of an invoice is not considered at all. You must report invoices that have been sent but not yet paid.
Advancing the VAT amount
Because the VAT return does not look at the payment status, you must remit the VAT on unpaid invoices to the Tax Authorities (Belastingdienst). Since you have not yet received the money from your customer, you are effectively "advancing" the VAT. If this happens with too many invoices, or if the invoice amounts are very high, this can be dangerous for your company's liquidity.
What if my customer does not pay at all?
If it becomes clear that an invoice will never be paid, you are entitled to reclaim the VAT you previously paid. The invoice then falls under "bad debts," and your customer is considered a doubtful debtor.
An important date here is the '1-year deadline'. If an invoice remains unpaid after one year, you can process this in the VAT return for that period. You subtract the turnover of the unpaid invoice from your regular turnover in section 1a or 1b. In essence, you remit slightly less VAT in that specific period to compensate for the VAT paid earlier.
Example scenarios: How do you process unpaid invoices in your VAT return?
To clarify how VAT returns work with unpaid invoices, two common situations are outlined below.
Scenario 1: Your customer pays only after several VAT returns
You run a business and send an invoice of €1,210 in the first quarter (Q1), consisting of:
- €1,000 for your service
- €210 VAT (21%)
According to the invoice basis, you must remit the €210 VAT to the Tax Authorities in your Q1 VAT return, even if the customer hasn't paid yet. The customer finally pays in September. This means:
- In Q1, you remit the VAT.
- In Q3, you receive the money, but you do not need to do anything in your VAT return, as the VAT was already processed in Q1.
Note: This situation can affect your liquidity. You are paying the VAT in advance and only getting it back through the customer's eventual payment. If VAT amounts are high or you have many unpaid invoices, this can have major consequences for your liquidity.
Scenario 2: Your customer does not pay at all (requesting a VAT refund)
You sent an invoice for €5,000 excluding VAT (€6,050 including VAT), but the customer does not pay and goes bankrupt. By law, you may reclaim the previously paid VAT after 1 year.
What should you do?
- Verify that the invoice remains unpaid 1 year after the final payment deadline. This is the official requirement for VAT refund.
- Process the VAT correction in your next VAT return. You do this by reducing the original turnover in section 1a (supplies within the Netherlands, 21% VAT) or 1b (9% VAT) by the invoice amount. This allows you to pay less VAT in that period, compensating for the VAT previously remitted.
- Update your accounting to ensure your administration remains correct.
Keep a close watch on which invoices have been unpaid for more than a year and may no longer be collectible.
Scenario 3: The customer pays after all after VAT refund
Have you deducted an unpaid invoice from your VAT return, but the customer pays later after all? Then you must remit the VAT on this invoice again. You can do this in the period in which you received the payment. You simply add the turnover of the invoice back to the regular turnover of the period in section 1a or 1b.
Ensure you do not request a VAT refund too early, but also not too late, to avoid errors in your VAT administration.
How do I prevent debtor problems with the VAT return?
The answer to this question is as simple as it is clear: keep the number of unpaid invoices as low as possible. You can start by doing this with effective debtor management. Send your customers a reminder if the payment deadline has passed. Often, your customer has simply forgotten the invoice, and it will be paid after your reminder. In some cases, something else is going on, and payment is harder to enforce.
In those instances, it is often a good idea to engage a collection partner. They specialize in collecting invoices and can increase the pressure on your customer. With incasso.nl, 90% of invoices are resolved. Furthermore, incasso.nl costs you, as a client, absolutely nothing!
It is important not to wait too long to take measures. After all, you have to remit the VAT on unpaid invoices to the Tax Authorities every quarter. So, ensure you take action well before the VAT deadline expires, and create an account at incasso.nl today!
