Business owners must be keenly aware of VAT because it’s something they will be dealing with on a regular basis. If you’re a new entrepreneur, you may not be all that familiar with VAT, which means you could make a mistake when it comes to filing your tax returns. This can lead to hefty penalties and surcharges that will eat your company’s bottomline.
This article will teach you about the basics of VAT, with a specific focus on the process of filing this specific tax. Read on to see how you should approach your dealings with VAT.
What Is VAT?
The value added tax is a form of sales tax imposed on the sale of various goods, properties, and services. VAT also comes into play when you’re importing goods.
Another important thing to note about VAT is that it is divided into three components, namely: output VAT, input VAT, and payable. Let’s take a look at each one below:
Output VAT is indirectly shouldered by your business and passed onto ordinary consumers buying your goods or services. It is added in the selling price that you charge your clients if your business is registered for VAT. It is typically found in the invoices you give to your clients.
Input VAT is the tax you pay whenever you are buying certain VAT eligible goods from a manufacturer or whichever other company is responsible for selling you supplies. There is a VAT included with your purchase and the supplier you bought it from will be in charge of remitting the taxes to the BIR.
VAT Payable is the liability you owe to the BIR every month or quarter. It must be paid to the tax authorities each period; hence it is dubbed VAT payable. It is computed by deducting the input VAT from the output VAT.
Is Your Business Required to File VAT Returns?
Filing VAT returns is a must under three scenarios, according to the BIR.
1) If the aggregate amount of gross sales or receipts for your business is over Php 3,000,000.00, that means you will have to file VAT returns. That holds true regardless of whether your business sells or exchanges goods, rents out properties, or renders services.
Do keep in mind that if a company fails to register as a VAT taxpayer (even if they should be registered as one), they are still not exempt from paying VAT. The company shall still be liable to pay the output VAT during the wherein they failed to register.
Another possible implication of failing to register for VAT is that Input VAT cannot be credited against the output VAT. For a business owner, the ramifications of this negligence is huge because the amount of VAT payable owed to the BIR shall be even more costly.
2) A person may also opt to be registered as a VAT taxpayer, even if the business did not meet the VAT aggregate amount of P3,000,000 in gross sales and receipts. A business, for whatever purpose they deem, can voluntarily become VAT registered.
3) Anyone who imports goods into the country is obligated to pay VAT. However, the filing will use a different form and it shall be submitted to the Bureau of Customs. For best results, ask a professional accountant for guidance to ensure that you are on the right track.
How to Register a Business as a VAT Taxpayer
Step 1:
Registering is the first step to becoming a VAT taxpayer. During initial registration, you must estimate your gross sales or receipts. If it is expected to exceed 3M within a 12-month period, then you are required to register as VAT taxpayer.
Step 2:
Formally commence the application process by filling out the necessary forms. This is done by selecting VAT as one of your tax types when you fill up the “Application for Registration” (use BIR Form 1901 for self-employed and Form 1903 for corporation / partnership). You will also have to register the sales invoices and official receipts as VAT invoices and VAT official receipts, which are all in the same application form. Those VAT invoices and VAT official receipts are supposed to be used for transactions subject to VAT.
Step 3:
You will have to acquire BIR Form 0605, fill that out, and send that to the BIR along with the payment for the registration fee of Php 500.00.
Step 4:
After registering your business, you must now register the books of accounts using Form 1905.
Noteworthy, you must keep in mind that once you are registered as a VAT taxpayer, this will be irrevocable for the next 3 years. Even if your actual sales or receipts do not exceed the threshold of 3million pesos, you are still required to continue being a VAT taxpayer.
How to File VAT Returns
You VAT returns is computed by subtracting the output vat and input vat. The difference shall be the VAT payable liability you will owe to the BIR. Your VAT payable shall be remitted to the tax authorities each period, whether monthly or quarterly. Keep in mind that companies that sell good and services more than they purchase raw materials will always have an output VAT surplus. This equates to a bigger tax liability. Here’s a simple equation:
Total Output Tax Due or Total Vatable Sales/Receipts (VAT exclusive) x 12%
Less: Total Allowable Input Tax or Total Vatable Purchases (VAT exclusive) x 12%
Equals: VAT Payable
The deadline for filing the monthly VAT returns is on the 20th day following the end of each collection month if you’re opting to complete the process manually. Quarterly returns are due every 25th day after the close of the taxable quarter.
Take note that VAT tax filing can be done either through electronic BIR forms or eFPS (Electronic Filing and Payment System). Businesses that decide to use the eFPS have slightly later deadlines based on which industry their business belongs to.
The filing for the monthly and quarterly months are almost identical. But, do keep these small variations in mind:
Ascertain the deadline dates to ensure that you pay on or before the due date.
Forms to be used will also vary between monthly and quarterly returns.
For the monthly, you declare the transaction for the month. For the quarterly, you declare the transaction for the quarter, but you deduct the previous 2 months payment to get the VAT payable for the quarter.
Keep in mind that you need to include an additional attachment for the quarterly VAT return, which is the Summary List of Sales and Purchases (SLSP). Include the Summary List of Importations if your business has any.
Those deadlines can sneak up on you so it’s best to prepare early.
1. Prepare the following:
• Certificate of Creditable VAT Withheld at Source or BIR Form 2306 if it applies to your business
• Approved Tax Debit Memo if it applies to your business
• Approved Tax Credit Certificate if it applies to your business
2. With the documents prepared, you can now fill out Form 2550M or 2550Q through eFPS or eBIR.
3. If you are paying via eFPS, you must pay through their payment portal. For those doing manual or eBIR filing, you have the option of going to an Authorized Agent Bank (AAB) covered by the Revenue District Office (RDO) in your area or other online payment partners like Land Bank, Union Bank, Payamaya and Gcash. If you are paying through AAB, submit the documents along with the VAT payment. You will then be given a BIR-prescribed deposit slip to fill out. After accomplishing the deposit slip, give that back to the bank teller so that it can be validated. That validated deposit slip will serve as proof that you filed your VAT returns.
Handling VAT returns both monthly and quarterly can be quite tedious for new business owners. Thus, professionals are ready to help if you need one. Ready to get started? Contact us today for a FREE 30-minute business consultation!
