news

Just a little bit of VAT math…

or let not those brain cells become lazy during the holidays!

Andrea Kleinová
21/08/2019
news

As of 1 April 2019, an amendment to the VAT Act, which inter alia regulated the method of calculating VAT, applies. A six-month transition period was introduced, which allows VAT to be calculated in the 'old' way, i.e. until 30 September 2019. Thus, we still have some time to prepare so far, but the preparation cannot be underestimated, especially given the fact that the set-up of accounting software is involved.

And how exactly does the VAT calculation change?

The legislative change concerns the calculation of the VAT “from above”, which you use when calculating the tax if you know and set the total price, including VAT. Until now, you have calculated the tax amount using a fixed coefficient. However, the amendment requires you to calculate value added tax mathematically, as shown in the examples below.

  1. „Method from above“ using coefficient
    This method has been definitively abolished since October 2019 because it leads to inaccurate results.
    Suppose you received 100,000 CZK including 21% VAT rate. You calculated the VAT by multiplying the total amount by a fixed coefficient (21/121, rounded to four decimal places), by the formula 100,000 × 0.1736. VAT in this case is 17 360 CZK, base 82,640 CZK. However, if you want to recalculate VAT from the base (i.e. 82,640 × 0.21), you will get a result of 17,354.4 CZK


  2. “Method from above” using math
    In the case of a newly-ordered mathematical calculation, there is no similar deviation.
    Let's use the same example to illustrate. You've received 100,000 CZK including 21% VAT rate. For the mathematical calculation of VAT, use the formula 100 000 - (100 000 / 1.21). VAT will come to you 17,355.37 CZK, base 82,644.63 CZK. If you then want to calculate VAT from the base (i.e. 82,644.63 × 0.21), you will get the correct 17,355.37 CZK.

Author

Andrea Kleinová
Andrea Kleinová
Senior Tax Advisor
Crowe