When can you deduct VAT and when can you not?

Content:

Can you always deduct VAT?

Not always . To keep accurate accounting records, it's essential to know when VAT is deductible and when it isn't. Many businesses and self-employed individuals make mistakes that can lead to problems with the Treasury.

Here we explain when you can deduct VAT and the requirements you must meet to do so correctly.

First you should know that some expense vouchers do not always allow VAT deduction .

The most common are:

• Expense receipts .

• Restaurant tickets .

• Fuel invoices without the name of the recipient company .

In addition to these receipts, generally speaking, if your receipts do not meet certain requirements, you will not be able to deduct VAT .

Requirements to be able to deduct VAT

VAT paid can be deducted as long as it is related to the economic activity. However, not all VAT is deductible . For an expense to be considered valid, it must meet certain criteria.

Let's look at the three essential requirements for correctly deducting VAT :

1. Spending must be linked to economic activity

If the expense is not related to generating income for your business, you will not be able to deduct VAT .

Inside there are:

Expenses arising from the use of a vehicle:

For VAT on fuel, tolls, or parking to be deductible, the vehicle must be necessary for the economic activity.

The following are NOT considered to be affected by economic activity:

• Used vehicles for both work and personal use.

• Vehicles not registered in the accounts, unless proven otherwise.

Professional travel expenses:

Business trips must be necessary and justified. The IRS may reject the deduction if:

• They are not directly related to economic activity.
• They are excessive or disproportionate expenses.

Important: Expenses must be properly documented to avoid problems during an inspection.

2. The expense must be duly justified

To deduct VAT, you need original documentation . These are the valid documents:

• Original invoice with all tax information.

• Official import settlement document .

• Self-invoice (in case of reverse charge).

• Signed receipt (for special agricultural regime).

Are digital invoices valid?

Also , simplified invoices (tickets) are only deductible if they include :

• NIF y domicilio del destinatario .

• Itemized VAT rate .

3. The expense must be recorded in the accounts

The expense must appear in the VAT books and be correctly accounted for by the company or professional activity.

Both self-employed individuals and businesses must keep accounting records of all deductible expenses. To avoid errors, we recommend using good invoicing software that allows you to create invoices, add existing ones, and simplify your time.

Non-deductible VAT on certain expenses

The Treasury prohibits the deduction of VAT on some goods and services.

Among them:

• Jewelry and trinkets.

• Food, beverages and tobacco.

• Shows and recreational services.

• Expenses for customer or third-party service.

• Travel, trips, hospitality and catering ( unless they are deductible in personal income tax or corporate tax ).

If you have questions about how to prepare your invoices or don't understand some terms, we have an article that explains everything clearly and simply.

Conclusion: How to avoid VAT errors?

Many self-employed individuals and businesses make mistakes that can lead to problems with the Treasury. To avoid them... The solution is simple: hire an expert advisor so you can forget about it.

At InnoTaxes we help you make sure you pay the right amount and not more .

Contact us with your questions or send us a WhatsApp so we can assist you more quickly and personally.