Input VAT: paying it is not the same as being able to deduct it
The law sets four conditions, and failing just one turns the VAT on that purchase into one more cost.
The VAT you pay your suppliers on purchases and expenses, deductible only if the goods or the service are used in your activity and you have the full invoice.
Articles 92 to 100 of the VAT Act govern the deduction. To deduct, you need four things at once:
- A full invoice. Article 97 requires the supporting document: a simplified invoice without your NIF and without the VAT shown separately is no use.
- Use in the activity (article 95). Goods of mixed use have rules of their own.
- That it is not excluded by article 96: jewellery, food and drink consumed by the taxable person or their staff, entertainment, tobacco and goods intended as gifts to clients.
- Entry in the record book of invoices received.
Two points that surprise people
The first: travel, hotel and restaurant costs do carry a right to deduct, but only if the expense is deductible for IRPF or Corporation Tax. It is the exception in article 96.One.6.
The second: for passenger cars the law presumes 50% business use (article 95.Three.2), unless proved otherwise. There is a list of vehicles presumed to be 100% used in the business: goods transport, passenger transport, driving schools, security, and travel by sales representatives or commercial agents.
An example with numbers
A quarter with €3,150 of input VAT, of which €210 relates to Christmas hampers for clients. That €210 is not deductible: the deductible VAT drops to €2,940 and the result of the 303 goes up by €210.
The right to deduct lapses four years after it arises (article 99.Three). An invoice from 2023 that turns up in a drawer today can still be deducted; one from 2020 cannot.
The mistake that comes up most
Deducting the VAT on a till receipt. Without the customer's NIF and without the VAT shown separately there is no right to deduct, however real the expense is and however clearly it was paid with the business card. It is the first thing a VAT inspection looks at.
Where this carries on in Cairos: Expenses, supplier invoices and deductible VAT.
Terms that go with this one
Almost no tax concept makes sense on its own. These three are the ones that most often turn up beside it.
VAT charged (cuota repercutida)
The VAT you add to the taxable base of your invoice and charge the client, to pay over to Hacienda afterwards.
VATProrrata
The percentage of your input VAT you can deduct when your activity combines transactions carrying a right to deduct with exempt transactions.
AccountingRecord book
The compulsory record, in date order, of the invoices issued and received, which underpins the self-assessments and the annual summaries.
This, handled without thinking about it
Cairos keeps the invoices, the record books and Hacienda's forms from the same data, so the theory on this page turns into boxes that are already filled in.
No card and no minimum term.