10 points SMEs need to watch to keep VAT under control
VAT, value added tax, is without doubt the best-known and most feared indirect tax among Swiss small and medium-sized businesses. As a consumption tax, VAT is charged on the purchase of a wide range of goods and services. Producers and service providers, such as SMEs, are responsible for issuing invoices and collecting the VAT, which they then pass on to the end consumer.
Handling VAT is a constantly changing task, as shown by the frequent changes to VAT legislation and the regular publication of new information material and sector guides on the subject. That is why it makes sense to bring in a tax adviser when VAT problems arise. They can offer tailored support based on the client’s situation and needs. You can also use accounting software that makes VAT handling a matter of a few mouse clicks.
Below are the 10 most common stumbling blocks SMEs face when applying VAT, together with tips on how to get past them.
Do I need to register for VAT? When and how can I do it?
Small businesses often realise they are liable for VAT too late, sometimes only after their first commercial transaction. It is advisable to check this during the first three months of business. Under the law, you are liable for tax if you run a business and reach an annual turnover of at least CHF 100,000 from taxable supplies. This turnover threshold is based on supplies invoiced excluding VAT.
If, when you start out, you do not yet know whether you will reach this annual turnover threshold, you will need to reassess your VAT liability after three months. When new companies are set up, they often make large investments that carry input tax, which makes early registration for VAT worthwhile.
You can register for VAT through the website of the Swiss Federal Tax Administration (make sure you keep the confirmation of your entry in the VAT register). It is also important to check which accounting method (effective method or net tax rate method) suits your business best.
The right accounting software makes VAT easier to manage
There are many accounting programs on the Swiss market, and they differ widely in complexity and value for money. Intuitive, easy-to-use software with plenty of automation is particularly suitable for non-professionals: it helps you avoid many problems when accounting for VAT.
Correct invoicing to customers and suppliers
As well as showing VAT correctly, an invoice must meet other formal requirements, listed in VAT Info 16. Supplier invoices must be checked and challenged if they do not meet VAT requirements. This is the only way to justify the input tax deduction under tax law.
Input tax deduction and correction
The tax on supplier invoices arising from business activity can generally be deducted from VAT. Make sure the supplier is actually entered in the VAT register. This is often not the case when you receive services from sole traders. Input tax also includes import tax. However, in the fields of education, culture and money and capital transactions there are services exempt from tax. If you incur costs to obtain such services, you cannot deduct the resulting input tax.
If a VAT-registered business also uses taxable services for non-business purposes, or partly for business and partly for non-business activities, the input tax must be corrected according to use. VAT law offers several options for this, which you can look up in VAT Info 9. As a rule, these input tax corrections must be declared under box 415 of the VAT form.
Watch out for acquisition tax
VAT-registered businesses that buy services from foreign companies not registered for tax in Switzerland are subject to acquisition tax. This includes, for example, services in business consulting and in asset management, fiduciary or advertising work.
For VAT-registered businesses, acquisition tax is declared as consideration in the VAT return and can be deducted as input tax if certain conditions are met, even if, as a private individual, you obtain services worth more than CHF 10,000 in a calendar year. In that case you need to contact the FTA in writing.
Remember to account for private supplies
Businesses that provide goods or services to their employees or related persons for private use must invoice the corresponding private shares. The FTA uses payslips to check these supplies, which must be declared. They include, for example, board and lodging, company cars and other fringe benefits not paid in cash. Private supplies must be invoiced at least once per calendar year or quarterly. It is always a good idea to check before the end of the year whether all private contributions have been included in the fringe benefits. Correct VAT coding and keeping separate accounts for these services make monitoring easier. For more information, see VAT Info 8
Annual VAT reconciliation
The annual VAT reconciliation is a key part of preparing the financial statements. The process involves checking and reconciling turnover tax and input tax. In the turnover reconciliation, the turnover booked in the financial period is compared with the turnover declared in the VAT return. The input tax reconciliation mainly involves checking the input tax paid through the input tax accounts. If there are discrepancies, you can report them to the tax authority using the “Annual VAT reconciliation” form and make the necessary corrections.
Make sure you meet the deadlines.
Once the quarter or half-year has ended, you have two months to submit the VAT return and pay. If you miss this deadline, default interest is charged from the first day. So it is wise to keep to these deadlines. It is also important to reconcile the figures in the VAT return you submit with those in your quarterly accounts.
If you do not have time to finish the accounts by the deadline, you can submit the VAT return with provisional, partly estimated figures. Once the accounts are up to date, you must declare the differences with a correction return or through the annual VAT reconciliation. The latter must be submitted to the FTA by 31 August of the following year. From that date, the returns are considered final. However, under current VAT practice the annual reconciliation can also be submitted later, and the FTA must take it into account ex officio for up to 5 years back.
Work out your VAT quickly and easily
Since 2021, filing VAT returns electronically has become the norm: the FTA only sends a paper return on written request. “Easy VAT accounting” is available to VAT-registered businesses. You can file electronic VAT returns without opening an online account with the FTA. With the account option, however, you have the advantage of also being able to submit correction returns, deadline extensions and more. And without an account you cannot transfer data directly from your accounting software.
Would you like to declare your VAT without an FTA account in future? Nothing could be simpler:
- Go to www.estv.admin.ch.
- Click on “VAT online”.
- Now click on “Log in without an account” and then on “Log in as guest”.
- Enter your Swiss mobile number and log in with the security code you receive by SMS.
- Enter the individual return code you received from the FTA.
- You can now fill in the online form, just as you used to on paper.
- The tax amount is calculated automatically.
- One click and your VAT return is sent.
VAT audit: what now?
VAT is a self-assessed tax, which means taxpayers are responsible for applying the tax rules correctly. For this reason, the FTA carries out VAT audits regularly. A VAT audit usually covers the previous 5 years. The auditors will first contact you to arrange an appointment. You will then receive written confirmation with precise instructions on the documents to prepare, the periods to be audited and other information. It is advisable to provide the following files as well:
– Detailed VAT lists from the accounting software (checks, returns, …)
– Reconciliation of turnover tax and input tax
– Annual financial statements
– Details of the private shares booked
– Other VAT-specific information
For the auditor, first impressions matter and can influence the VAT audit. The best thing to do is to ask your trusted adviser to prepare for and attend the VAT inspection with you.
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