VAT for beginners: 25 % in, 25 % out, and the rest is bookkeeping
Output VAT, input VAT, VAT periods and the deadlines, explained once so you can forget it again.
VAT is the tax everyone is afraid of, and the one that is easiest to get under control. There are three concepts.
Output VAT
When you sell something, you add 25 % on top of the price. Those 25 % are not yours. They belong to the Danish Tax Agency, and you hold them until they are settled. If you sell a service for DKK 10,000, you invoice DKK 12,500 and owe DKK 2,500 in VAT.
Input VAT
When you buy something for the company, you also pay 25 % VAT. That you may deduct. If you buy a computer for DKK 8,000 including VAT, DKK 1,600 is VAT you get back. (A few things have limited deduction: restaurant visits 25 %, hotels 100 %, passenger cars as a rule 0 %.)
VAT settlement
Output VAT minus input VAT = what you must pay. If the input VAT is larger (it happens in the start-up phase when you invest), you get money back.
How often?
It depends on turnover. New companies typically start with quarterly VAT; at low turnover the Tax Agency may put you on half-yearly VAT, and at high turnover monthly VAT. The deadline for quarterly VAT is the 1st of the third month after the quarter ends; VAT for Q3, for instance, must be reported and paid by 1 December.
The two mistakes everyone makes
- Using the VAT money as liquidity and lacking it on settlement day. Set it aside every time a customer pays.
- Forgetting a VAT period. The Tax Agency then estimates the VAT and adds a charge on top. A zero return takes two minutes; a forgotten return costs.
What LegaSum does
VAT is calculated continuously from what has been posted. You see what falls due, when, and what has been set aside. When the period closes, the statement is ready for reporting, and LegaSum tells you in good time, not on the day.