VAT Returns for Not for Profit Organisations By Luuk Dammerman

Weds 25th Jan 2012

My name is Luuk Dammerman and I am a Director of the Eclipse Group based in the Netherlands. Since joining Eclipse in a consulting role back in 1994, I have specialised in the implementation and project management of finance and business systems internationally. I am now responsible for helping our European clients to get the most from the investment in their financial and management software.

One recent project that I have been involved with centred around the processes involved in the recording/reclaiming of VAT by Not For Profit organisations who incur costs both within and outside of the EU. The objective of the project was to ensure that the purchase invoice postings being recorded in the finance system, accurately reflected the information needed to submit VAT returns to the tax authorities. This project highlighted a number of areas relevant to many Not For Profit organisations operating in Europe.

Organisations delivering tax exempt services, cannot reclaim VAT on purchases and have to recognise it as an expense. Additionally, the treatment of VAT is complicated, with VAT rates used being dependent on a combination of the country where the service was purchased (eg. the Netherlands, inside EU and non-EU) and the expense type. Therefore, to ensure that the correct VAT amounts are paid/reclaimed/self assessed it is important that each VAT element is recorded accurately in the finance system. Consequentially, the finance team members involved should have a good working knowledge of the current VAT rules.

As an example a Not For Profit organisation registered for VAT in The Netherlands, may purchase goods in Germany, which are later consumed in The Netherlands. The invoice from the German supplier is for a total amount of € 12,000 (including €2,000 German VAT). When entering this invoice into the system, the Not For Profit Organisation must determine under which Dutch VAT rate these goods fall. If we assume this is 19% the detailed below is an example of how the transaction is recorded:

This transaction results in the Not For Profit Organisation being able to reclaim €2,000 from the German authorities. Failure to record the transaction in this way could result in paying VAT both in Germany and in The Netherlands.

If the supplier exports the goods and invoices at 0% including the term "VAT Transferred" the required transaction is recorded as follows:

In this example no VAT is paid in Germany and the correct amount is calculated for Dutch VAT.

This is only one example in relation to purchases within the EU. Having spoken to colleagues and other Not for Profit Organisations, recording VAT and completing returns can be a pretty painful and time consuming activity and it would be valuable for organisations to review their current VAT administration process. Amendments to this process may result in significant cost reductions and avoid unnecessary tax liabilities.

I would welcome feedback on this subject.

About the Author
Luuk is a Director of Eclipse Group and joined the company in 1994. During his time at Eclipse, Luuk has worked with many of Eclipse's international clients to design and deliver multi-location finance systems across EMEA and the Americas. Luuk's primary role at Eclipse is managing complex business solution deployment projects for European clients.