What happens if you miss a VAT deadline?
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Ah, deadlines. For freelancers, a deadline is either your best friend or a fearsome foe. A well-placed deadline can frame a structured routine and a meticulously planned workload. Or, it can float in the background until the 11th hour when it suddenly swoops in, causing a spike in stress and a frantic burst of motivation. Regardless of your relationship to deadlines, they’re a part of life in work and play, and in particular, when it comes to paying taxes.
Whether you’re new to freelancing in Germany, new to paying VAT, or you just happen to have missed a VAT deadline for the first time, this article will sort you out with all you need to know.
VAT – the basics
In case you’re new to all of this, before we move on, let’s bring it back to the basics.
As a freelance individual registered with the German tax authorities and generating work through freelance activities, your income is subject to tax payable to the German tax office (“Finanzamt”). There are two key taxes to be aware of: income tax (“Einkommensteuer”) and VAT or value added tax (this has so many names in German, but is most often referred to as “Umsatzsteuer”)
Your income tax is payable on any income generated through your work, less any applicable deductions, just as is the case for people in regular employment.
VAT, however, is something that only freelancers, tradespeople, and businesses need to pay. Unless you fall into the classification of a small business owner (“Kelinunternehmer”), your income will be subject to VAT, which is typically charged a rate of 19% or 7%, depending on the kind of products or services you provide. This means you charge clients in Germany VAT, and you pay VAT to the tax office, after claiming any deductible expenses against it.
💡 Tip from Accountable: VAT tax deductions are treated differently to income tax deductions. Make sure you know what you can and can’t deduct by using our handy tool.
In order to determine how much VAT you owe, and to make sure that you pay it, the tax office requires you to submit what’s referred to as an advanced VAT return (“Umsatzsteuervoranmeldung”) either monthly or quarterly, and a VAT declaration (“Umsatzsteuerbescheid”) annually. For the remainder of the article, we’ll refer to the advanced VAT return as a “VAT return”.
Are you still with us?
You might be thinking “How on earth do I submit this so-called VAT return?” Luckily, we have helpful guides to show you how and – ahem – a pretty good app that does it for you if we do say so ourselves.
So what happens if you forget to submit your VAT return by the deadline?
Look, we all make mistakes, and contrary to popular belief, the hard workers at your local German tax office do have hearts.
If you forget to submit your VAT return by the due date, there are two things you can do:
- Download Accountable and submit your VAT return ASAP! Sometimes, if you’re close enough to the deadline, such as a day or two late, it will be considered on time.
- Write a letter to your local tax office letting them know that you missed the deadline and that you’re working hard to get it done. Often, particularly if it’s not a regular occurrence, you’ll receive an extension. You can even receive an ongoing extension, so that each month or quarter, you get a bit of extra time to gather your invoices and receipts and send off your return.
What if I miss the deadline by a long shot?
If you completely miss a deadline, chances are you’ve also collected an intimidating pile of reminder letters, one of which will likely contain a late fee. If you file the advance VAT return too late or do not pay the VAT that’s due on time, the tax office is entitled to issue late payment fines.
How much, you ask? It depends on various factors, such as how long overdue it is, how often you’ve missed deadlines before, and the discretion of the individual tax officer. However, it may not exceed 10% of the tax amount due, or 25,000 €. If you miss the deadline for the fee itself, there is a further penalty of 1% of the VAT due per month overdue. So, if you do receive a fine, it’s best to pay it as soon as you can.
What actually are the VAT deadlines?
I thought you’d never ask.
In order to avoid fines for late reporting, you must file your advanced VAT return by the 10th day of the month that follows the reporting period. For example, if you report your VAT quarterly, your first deadline for the year will be April 10th, for the period of January 1st through to March 31st.
You must also pay the VAT amount that you’ve reported to have earned (after applicable deductions) directly to the tax office. Payment of VAT is due on the same day of reporting, ie. the 10th day of the month following the reporting period.
Your annual VAT summary, confirming the total amount of VAT that you charged throughout the tax year is due by July 31st of the following year. So for the tax year of 2020, your annual VAT declaration is due on July 31st of 2021.
You can find an overview of the most important tax deadlines for freelancers in Germany here.
Help us help you!
Nobody likes to pay a fine, especially when it’s likely just due to information overwhelm or a misunderstanding of a foreign system. Tax is difficult enough in your native language, let alone in German. Using Accountable to manage your taxes allows you to keep on top of deadlines and easily generate advanced VAT returns and other key tax reports, making your life much easier.