{"id":329,"date":"2019-08-26T14:50:06","date_gmt":"2019-08-26T14:50:06","guid":{"rendered":"https:\/\/silviomuscat.com\/?p=329"},"modified":"2020-01-10T11:13:36","modified_gmt":"2020-01-10T11:13:36","slug":"income-tax-vs-vat-only-one-affects-your-profit","status":"publish","type":"post","link":"https:\/\/silviomuscat.com\/income-tax-vs-vat-only-one-affects-your-profit\/","title":{"rendered":"INCOME TAX vs VAT – Only one affects your Profit!"},"content":{"rendered":"

INCOME TAX vs VAT – Only one affects your Profit!\t<\/h2>\n

Both Income Tax and VAT will affect your CASHFLOW<\/a> , but only Income Tax is really an expense for accounting purposes.\u00a0<\/p>\n

TAKE very good note –\u00a0 VAT laws and TAX laws have different rules on how expenses are treated. Therefore this will result in different treatment of your expenses.<\/p>\n

In a nutshell \u2013 in this case , what is good for the goose is NOT good for the gander and Vice versa<\/p>\n

For example: Business Expenses on which there is NO VAT such as : Insurance , Bank Charges, Interest and Wages will naturally not enter in your VAT Return.<\/p>\n

Meaning that they cannot deducted from your Output VAT due to the VAT Dept.<\/p>\n

However these are allowable as deductions for Income Tax Purposes and so they will be deducted from your Profits and in turn reduce your Income Tax bill!<\/p>\n

\nCASHFLOW VS PROFIT
\n<\/h2>\n

Example<\/p>\n

A person is registered for VAT under ART 10 . This means the person is under the VAT Refund system and so whilst the person has to charge 18% or applicable VAT rate on top of the business Sales, the same ART10 person can also deduct any VAT incurred.<\/p>\n

Therefore assuming person is registered under Art 10 \u2013\u00a0 this person must charge VAT but can deduct VAT incurred.<\/p>\n

Assuming the below figures relates to a new ART 10 start-up Business operating in its first 3 months \u2013 October till December:<\/p>\n\n\n\n\n\n\n\n\n\n\n\n
\u00a0<\/td>\n\n

Net Income before VAT<\/p>\n<\/td>\n

\n

VAT<\/p>\n<\/td>\n

\n

Gross Amount<\/p>\n<\/td>\n<\/tr>\n

\n

Sales<\/p>\n<\/td>\n

\n

10,000\u00a0<\/p>\n<\/td>\n

\n

1,800<\/p>\n<\/td>\n

\n

11,180<\/p>\n<\/td>\n<\/tr>\n

\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n<\/tr>\n
\n

Telecommunications<\/p>\n<\/td>\n

\n

\u00a0\u00a0 500<\/p>\n<\/td>\n

\n

\u00a0\u00a0\u00a0\u00a0 90<\/p>\n<\/td>\n

\n

\u00a0\u00a0 590<\/p>\n<\/td>\n<\/tr>\n

\n

Advertising<\/p>\n<\/td>\n

\n

1,000<\/p>\n<\/td>\n

\n

\u00a0\u00a0 180<\/p>\n<\/td>\n

\n

1,180<\/p>\n<\/td>\n<\/tr>\n

\n

Wages<\/p>\n<\/td>\n

\n

4,000<\/p>\n<\/td>\n

\n

NIL<\/p>\n<\/td>\n

\n

4,000<\/p>\n<\/td>\n<\/tr>\n

\n

Insurance<\/p>\n<\/td>\n

\n

\u00a0\u00a0 200<\/p>\n<\/td>\n

\n

NIL<\/p>\n<\/td>\n

\n

\u00a0\u00a0 200<\/p>\n<\/td>\n<\/tr>\n

\n

Permit<\/p>\n<\/td>\n

\n

\u00a0\u00a0 100<\/p>\n<\/td>\n

\n

NIL<\/p>\n<\/td>\n

\n

\u00a0\u00a0 100<\/p>\n<\/td>\n<\/tr>\n

\n

Rent<\/p>\n<\/td>\n

\n

1,200<\/p>\n<\/td>\n

\n

NIL<\/p>\n<\/td>\n

\n

1,200<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Next – below we will learn how all figures feature in Tax Return, but not all in your VAT return.<\/p>\n

VAT RETURN WORKINGS<\/strong><\/p>\n

Your VAT Return Computation would be as follows:<\/strong><\/p>\n

\u00a0Item \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0Net\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 VAT<\/strong><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0 Euro\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0 Euro<\/p>\n

Sales\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a010,000\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a01 ,800\u00a0\u00a0\u00a0 –\u00a0 Output Vat due<\/p>\n

Telecommunications\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 500\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0 (90)\u00a0\u00a0 \u00a0\u00a0\u00a0–\u00a0 Input Vat deductible<\/p>\n

Advertising\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0 1,000 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0(200) \u00a0\u00a0\u00a0\u00a0–\u00a0 Input Vat deductible<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 _______<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 VAT Due:\u00a0\u00a0\u00a0\u00a0\u00a0 1,510 <\/strong><\/p>\n

Note: Items which do not have VAT such as wages, insurance, permits and rent are not listed in the VAT RETURN.\u00a0<\/p>\n

It appears that the VAT dept is owed \u20ac1,510 as there was more output VAT on Sales, than input VAT from Expenses.\u00a0<\/p>\n

Either way the VAT has already been collected from your clients (hopefully). It just a matter of passing the VAT due to the Govt as the good indirect tax collectors that we essentially are!<\/p>\n

\nTAX RETURN WORKINGS
\n<\/h2>\n

Remember, only NET amounts will go in your tax return.<\/p>\n

Below is how you\u2019re Profit & Loss (for calculating and submitting your TAX Return) would look like:<\/p>\n

\u00a0<\/strong><\/p>\n

Profit and Loss<\/strong><\/p>\n

01.10.2019 till 31.12.2019<\/strong><\/p>\n

\u00a0<\/strong><\/p>\n

Sales\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a010,000<\/p>\n

Less Expenses<\/p>\n

Telecommunications\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0 500<\/p>\n

Advertising\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1,000<\/p>\n

Wages\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 4,000<\/p>\n

Insurance\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0 200<\/p>\n

Permit \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0100<\/p>\n

Rent\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1,200<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 ______<\/p>\n

Total Expenses\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (7,000)<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 ______\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/p>\n

Net Profit\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 3,000<\/strong><\/p>\n

Note:\u00a0 Wages, insurance, permit and rent expenditure did not have VAT, however whilst they do not affect or feature in your VAT return, they are deductible from your Sales Revenue and therefore reduce your NET Profit.\u00a0<\/p>\n

Hold your horses though\u2026 we\u2019re assuming that all these expenses relate to the business, and are not personal expenses!<\/p>\n

That sorted, the 3,000 Eur falls in the Tax Free Tax Bracket and so no tax is due on the profit, if this was your only income for the year!<\/p>\n

For more help to distinguish between your VAT workings and your Income Tax workings contact us<\/a> for a complimentary meeting.<\/p>\n","protected":false},"excerpt":{"rendered":"

INCOME TAX vs VAT – Only one affects your Profit! Both Income Tax and VAT will affect your CASHFLOW , but only Income Tax is really an expense for accounting purposes.\u00a0 TAKE very good note –\u00a0 VAT laws and TAX laws have different rules on how expenses are treated. Therefore this will result in different […]<\/p>\n","protected":false},"author":1,"featured_media":337,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[6],"tags":[],"_links":{"self":[{"href":"https:\/\/silviomuscat.com\/wp-json\/wp\/v2\/posts\/329"}],"collection":[{"href":"https:\/\/silviomuscat.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/silviomuscat.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/silviomuscat.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/silviomuscat.com\/wp-json\/wp\/v2\/comments?post=329"}],"version-history":[{"count":13,"href":"https:\/\/silviomuscat.com\/wp-json\/wp\/v2\/posts\/329\/revisions"}],"predecessor-version":[{"id":474,"href":"https:\/\/silviomuscat.com\/wp-json\/wp\/v2\/posts\/329\/revisions\/474"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/silviomuscat.com\/wp-json\/wp\/v2\/media\/337"}],"wp:attachment":[{"href":"https:\/\/silviomuscat.com\/wp-json\/wp\/v2\/media?parent=329"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/silviomuscat.com\/wp-json\/wp\/v2\/categories?post=329"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/silviomuscat.com\/wp-json\/wp\/v2\/tags?post=329"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}