VAT

What VAT means

VAT is the tax on the sale of goods and services. It is shown on the invoice to the customer, collected by the retailer and passed to the tax office. For the retailer it is therefore a pass through position rather than a cost, which is often confused in daily work as long as input tax and output tax are not booked separately.

The standard rate in Germany is 19 percent. The reduced rate of 7 percent applies to certain product groups such as books, food and some cultural services. In online retail it appears mainly with print products and some staple foods, while digital products are almost always charged at the standard rate. A basket mixing both rates has to show both, which is a common mistake in shop systems.

What an invoice has to show

An invoice needs the full name and address of retailer and customer, the invoice date, a consecutive invoice number, quantity and description of the goods, the consideration, the tax rate and the resulting tax amount, plus the retailer's tax number or VAT identification number. Small amount invoices have relief, and for services to businesses the customer's number is additionally required.

The special cases that cost time

• Small business rules: below the turnover limit no VAT may be charged. If it still appears on the invoice, the retailer owes it anyway.
• Intra-community supply: sales to businesses in the EU are exempt under conditions but require the customer's valid number.
• Destination principle: for sales to private customers in the EU the rate of the customer's country applies once the threshold is exceeded.
• Vouchers: a value voucher is a means of payment, a goods voucher is a supply. The difference decides when tax is due.

What that means for a shop

Three things belong on the check list. First, maintain the tax rate per item correctly, including the distinction between reduced and standard. Second, label prices consistently as gross or net depending on the audience. In sales to private customers the final price must be stated, while sales clearly aimed at businesses may be shown net. Third, an analysis grouping revenue by tax rate, because otherwise the accounts produce no correct advance return.

Frequent questions

• Is VAT a cost factor? No, it passes through. Exceptions are cases where input tax may not be deducted.
• Do I have to waive VAT under small business rules? That is a decision with binding effect for several years, not a yearly choice.
• What happens with a wrong rate? It becomes due retroactively with interest. That is why reviewing the assortment pays off.