TMI / VAT question - can you get all the VAT back...?

MC Deli · Post by **MC Deli** » Sun Nov 01, 2009 12:08 pm

I have been reading plenty of posts, Vero docs, Enterprise Finland pages, YTJ etc etc and I still don't understand this:

"If the annual turnover of the business activity does not exceed 8 500 euros, no tax is levied. When this threshold for VAT liability is exceeded, the enterprise receives a relief, which gradually decreases with the increase of the turnover. The full amount of VAT is levied when the annual turnover reaches 22 500 euros."

...maybe it is because I haven't been through the process but I don't get "levied" when I thought VAT was payed on all transactions, don't get "relief" as I can't find it explained, especially the "gradually" part. I will try and ask my specific questions - help appreciated as ever:

-I am employed and regularly waged
-I occasionally get income and pay income tax from a second job - I used to just process it as secondary income but now the second job is incurring a lot more expenses - it is music so, as you might imagine, the odd bit of income doesn't come close to the amount I spend on rehearsal room, equipment, travel etc.
-In particular I have a new rehearsal room where I will be charged VAT on top of the rental price. I was told "set up a toiminimi and then you can get all the VAT back"
- Q1 - If I have a toiminimi in addition to my regular day job, and the toiminimi has annual income of less than 1000eur, expenses of @10000eur - can I register for VAT and will I get ALL the VAT back on rental and equipment expenses?
- Q2 - Is there a minimum level of pensions contribution for TMI - if the TMI is loss making and I already pay pensions contribution through my day job?

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Rosamunda · Post by **Rosamunda** » Sun Nov 01, 2009 12:42 pm

MC Deli wrote:I have been reading plenty of posts, Vero docs, Enterprise Finland pages, YTJ etc etc and I still don't understand this:

"If the annual turnover of the business activity does not exceed 8 500 euros, no tax is levied. When this threshold for VAT liability is exceeded, the enterprise receives a relief, which gradually decreases with the increase of the turnover. The full amount of VAT is levied when the annual turnover reaches 22 500 euros."

In practice, if the annual turnover is less than 22 500 e, the business can claim the VAT back à posteriori. This requires some fairly simple form-filling but obviously it can only take place AFTER the books have been closed at the end of the accounting period. I did it last year and got some VAT back.

...maybe it is because I haven't been through the process but I don't get "levied" when I thought VAT was payed on all transactions, don't get "relief" as I can't find it explained, especially the "gradually" part.

So yes, VAT is invoiced/paid on all transactions. The "relief" bit comes much later. The "gradually" part is simply because it's incremental.

I will try and ask my specific questions - help appreciated as ever:

-I am employed and regularly waged
-I occasionally get income and pay income tax from a second job - I used to just process it as secondary income but now the second job is incurring a lot more expenses - it is music so, as you might imagine, the odd bit of income doesn't come close to the amount I spend on rehearsal room, equipment, travel etc.
-In particular I have a new rehearsal room where I will be charged VAT on top of the rental price. I was told "set up a toiminimi and then you can get all the VAT back"

Yes, you could set up a TMI. It sounds like it might be a good idea. If your annual turnover on the business is under 8500e, you are not obliged to register for VAT but you can if you want.

- Q1 - If I have a toiminimi in addition to my regular day job, and the toiminimi has annual income of less than 1000eur, expenses of @10000eur - can I register for VAT and will I get ALL the VAT back on rental and equipment expenses?

Yes, you can register for VAT.
No, you can only get VAT RELIEF ie: VAT netted off against VAT you have received from your customers. You need to do monthly accounts (cash based so easy) and you net off the VAT you paid (on your rent for example) against the VAT you received (ie from your gigs or whatever it is you do). So if your rent in October includes 200e of VAT but you only cashed in 50e of VAT from the invoices you sent out in the same month, then your VAT return is zero. Not -150e. (in cash terms this means the 50e VAT you billed and received from your customer stays in your business)

The VAT return is due on the 15th of the second month (ie VAT return for October is due on 15th December). It is entirely paperless, on-line.

- Q2 - Is there a minimum level of pensions contribution for TMI - if the TMI is loss making and I already pay pensions contribution through my day job?

Not sure about this. I have an Oy and yes, I have a minimum YEL contribution to make (I think it is billed once a year, hubby does that paperwork for me). Not sure how it works for a TMI especially if you have salaried income. At a guess, I think you still have to pay in, but you could send an email to http://www.intofinland.fi and ask them (or drop in if you are in HEL, they are just behind Kamppi bus station).

BUT BUT BUT.... it is all changing and starting 2010 the new Tax Account System is being introduced. Small businesses (TMI and small Oy) are already receiving info about it. You should be able to find more info as it appears on vero.fi

Overall, it probably makes sense to set up a TMI for your second business. It won't have any effect on your income tax (since it all gets added up together) but you will be able to claim back some VAT. Whether or not the amount of VAT you can claim justifies the hassle of the paperwork, is up for you to decide.

Hope this makes sense. It isn't easy to explain how VAT works to someone who has never studied bookkeeping or run their own business.

MC Deli · Post by **MC Deli** » Sun Nov 01, 2009 3:05 pm

Thanks for the ace reply. I am still trying to understand - and I'm wondering if I have totally missed the point, or asked the wrong question:

"If the annual turnover of the business activity does not exceed 8 500 euros, no tax is levied."

-Does this actually mean that, if I turnover less than 8500e and do not register for VAT, that I do not have to pay VAT on goods/services for my TMI (like rent, equipment etc.) ?

(...I am still trying to work out if what I was told is true : "just set up a TMI and you don't have to pay the VAT")
(PS Intofinland for me tomorrow:))

Rosamunda · Post by **Rosamunda** » Mon Nov 02, 2009 11:32 am

No, everyone has to pay VAT.

If your business is under 8500e turnover and you choose NOT to register for VAT then you can't claim anything back. You would effectively be unknown to the VAT system, so you would be treated like any other private person.

What you were told is true IF you register and the VAT you RECEIVE exceeds the amount of VAT you PAY for goods and services you buy.

Example 1.

In October I invoice 1000e + 220e VAT(22%) = 1220 e for some translation work I did and the customer pays me 1220e.

In October I bought office supplies for 100 e + 22e VAT = 122 e

I can deduct the 22e VAT I paid for the office supplies from the 220e VAT I received from my customer for the translation work. So, on 15th December when I do my October VAT return, I only owe the VATman 198e.

Example 2.

In November I invoice 500e + 110e VAT = 610e for some teaching.

In November I bought a new laptop (for my business) for 800e + 176e VAT = 976e

I can deduct the 176 e VAT for the laptop from the 110 e VAT I received from my customer. In January when I do my VAT return I have a credit-balance of 66e. This carries forward to the following month. The VATman won't refund me the VAT. It can only be off-set against VAT I receive from my customers.

(However, this is an unusual scenario, since most business generate more revenue than expenses, otherwise they eventually go out of business)

At the end of the year when I do my accounts, if my turnover was below the 22500e threshold, then I fill out a form and get the rest of the VAT back. I'm not quite sure how they do the calculation, last year I got back a bit less than I expected.

It gets much more complicated than this (eg with prepaid VAT etc...) but the new system will make it MUCH easier especially for small businesses and toiminimi.

MC Deli · Post by **MC Deli** » Mon Nov 02, 2009 1:50 pm

Yes - thanks - I understand now.

I just had a nice chat in In To Finland as well - that seems like a great service - Kela and Vero for foreigners under one roof.

I am going to start researching setting up a non-profit organisation as it might be the best way to handle the business side of a non-profit making exercise. So far I haven't found any criteria on Vero, Enterprise Finland, SKR but I will keep looking...

EDIT: http://www.prh.fi/en/yhdistysrekisteri/ ... minen.html ...non profit info at the PRH site...

MC Deli · Post by **MC Deli** » Mon Nov 02, 2009 2:46 pm

So, does an RY (or "association" as it translates) have to pay VAT?

I haven't found the definitive answer yet.

Vero's tax guide says:
"A precondition for the liability to tax is that the supply takes place in the course of business. The main criteria for fulfilling this precondition are that the activity is carried out for the purpose of gaining profit, is oriented towards a largely unrestricted body of customers, is continuous and carried out autonomously, and involves an element of business risk."

...which would suggest RY's do not pay ALV. But then again Vero's tax guide also said:

"If the annual turnover of the business activity does not exceed 8 500 euros, no tax is levied."

...which is a very misleading statement I now know:)

Pursuivant · Post by **Pursuivant** » Mon Nov 02, 2009 3:12 pm

If it doesn't make business - if an RY makes business it has to get VAT registered.

MC Deli · Post by **MC Deli** » Mon Nov 02, 2009 3:13 pm

Finlex.fi has an Eng translation of the Value Added Tax Act - article 4 says

"A corporate body for promoting the public good referred to in the Income Tax Act (1535/92) is liable to
tax only to the extent that the income, which has been derived from its activity is regarded as taxable
business revenue for the corporate body, in accordance with the said Act."

...great legalese suggesting that an RY would not be VAT liable but still not spelling it out...?

Pursuivant · Post by **Pursuivant** » Mon Nov 02, 2009 3:17 pm

Well it states it quite clearly - if it makes business its liable. If it doesn't it isn't. If it doesn't read what you want to have it reading its not my fault you cannot avoid taxes with a RY.

MC Deli · Post by **MC Deli** » Mon Nov 02, 2009 4:14 pm

Pursuivant wrote:Well it states it quite clearly - if it makes business its liable. If it doesn't it isn't. If it doesn't read what you want to have it reading its not my fault you cannot avoid taxes with a RY.

My understanding so far is that, if you are aiming to make profit, then you are liable. And the definition of an RY is a non-profit, naturally.

PS I am trying to understand - not to twist it. I asked In To Finland earlier if an RY pays VAT and the guy couldn't answer - so it is not so obvious it seems. I have since read through the VAT law and a Google translate of the Income Tax Law. I've written to Vero. Next I will ask an RY as well... would be interesting to know if an FFers have set up "associations"...?

Upphew · Post by **Upphew** » Mon Nov 02, 2009 4:42 pm

MC Deli wrote:My understanding so far is that, if you are aiming to make profit, then you are liable. And the definition of an RY is a non-profit, naturally.

PS I am trying to understand - not to twist it. I asked In To Finland earlier if an RY pays VAT and the guy couldn't answer - so it is not so obvious it seems. I have since read through the VAT law and a Google translate of the Income Tax Law. I've written to Vero. Next I will ask an RY as well... would be interesting to know if an FFers have set up "associations"...?

If RY isn't liable then it can't get VAT back, as you asked.

Father's friend organizes their Lions market or something like that, and I heard him moaning about the VATs that they have to pay from the profits. And they, AFAIK, throw the money to the needy? Also you should check example number 7: http://www.prh.fi/fi/yhdistysrekisteri/ ... minta.html

MC Deli · Post by **MC Deli** » Mon Nov 02, 2009 5:43 pm

Upphew wrote: If RY isn't liable then it can't get VAT back, as you asked.

Sorry, I will be honest - I don't understand.

Upphew wrote: Father's friend organizes their Lions market or something like that, and I heard him moaning about the VATs that they have to pay from the profits.

Yeah, sorry I don't get it. I thought VAT was paid on goods and services rather than profits. So maybe this is chinese whispers?

Upphew wrote: Also you should check example number 7: http://www.prh.fi/fi/yhdistysrekisteri/ ... minta.html

Yes thanks the PRH info is great. It is even better for me in English http://www.prh.fi/en/yhdistysrekisteri/ ... minen.html
I checked the non-Eng stuff as well earlier with ggl. I have been thinking for years about a music non profit and it looks quite do-able.

Still am interested to get fuller understanding of how VAT works with non profits (RYs)...?

Rosamunda · Post by **Rosamunda** » Mon Nov 02, 2009 5:45 pm

This doesn't help much either: http://www.pwc.com/fi/en/publications/vat-2008.jhtml

Under "Taxable persons" (p3) is says "There are certain exceptions to these main rules. For example small business, non-profit organisations, religious communities ....:"

But, under Exemptions (p6) it says NOTHING about non-profit orgns.

If you set up an "ry" there is paperwork to do, and bookkeeping (and audit) and -IIRC- at least one annual tax return (just to show them you are not making any profit). I really don't know about the VAT though; I will ask a couple of my contacts if they can point me to some info (but not until Friday...)

The idea behind VAT is that the end-user - final consumer - pays the tax. If you are consuming anything (goods or services) and not selling it on then you are liable for the VAT.

When it says "non-profit organisations are not liable for VAT" it means simply that they do not have to charge VAT to their customers. So, for example, when I E S A F ry charges 8€ for a quiz team to compete in their monthly pub quiz, they do not have to charge VAT on top of that (because they are an ry). But they cannot get a reimbursement for the VAT they pay on the stuff they buy (eg advertising space, paper etc) because they are not running a taxable activity.

You cannot get VAT back if you don't pay any in.

MC Deli · Post by **MC Deli** » Mon Nov 02, 2009 7:02 pm

I just had a conversation with someone who runs an RY and it was explained to me as in Penelope's last post:

An non-profit RY can register for VAT, but is not exempt, just subject to the same deduction system as other companies.

This begs the question - what is the benefit of becoming an RY - why not just be a company that doesn't make a profit far simpler process - maybe I will come back to that another time...

Pursuivant · Post by **Pursuivant** » Mon Nov 02, 2009 8:48 pm

A RY is a different thing than a company - there is no *benefit* issue. You really need to read the law through, I've got a headache trying to explain land deeds and memorizing my lines for the open mic so I'll refrain ... Self-help time: Get a few clue-by-fours from puukeskus and go drink a bottle of "Louisiana Pain is Good" chilli and think of me while you read the appropriate laws.

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