If I have a business that doesn’t make money, can I still buy thing at the price excluding VAT, or does it not work that way?
In: Economics
You never actually buy at a price excluding VAT. At least not directly. The price you pay right now for anything you buy includes VAT.
BUT… In the accounting for the business, anything yiu buy and sell? The price goes into two different accounts: the price without VAT, and the VAT. Every quarter you then get reimbursed for VAT paid by the government (or you have to pay what more you received in VAT than you paid).
Essentially like this (just the general idea, I haven’t done in accounting in 20+ years so just showing the idea behind it, not actual correct accounting):
Buy product for 121 Euro, including 21% VAT.
CASH -121
STOCK +100
VAT +21
You later sell that product retail for (to keep it simple) 242 Euro including 42 Eur VAT.
CASH + 242
STOCK -100
PNL -100
VAT -42
At the end of the quarter your VAT account has -21 in it and needs to be cleared out by paying 21 Eur to the Taxman.
CASH -21
VAT +21
Your CASH is now 100, your PNL is -100 (which is 100 profit really), your STOCK and VAT are both 0.
If you never managed to sell that stock, then your VAT would be at +21, and you would:
CASH +21
VAT -21
I.e. receive the 21 Eur you paid to your supplier in VAT back from the taxman.
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