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VAT Reclaim 2023 - Don't Let Your Expiring VAT Go to Waste

As the end of the year approaches, it is a priority for every company to check the VAT handling of their issued and received invoices. But why is VAT checking so crucial, and how does modern technology contribute to easier handling of the challenges involved?

The Importance of VAT Checking - Supplier Invoices

Deductible VAT is not just a legal possibility. Companies that do not check and optimize their VAT compliance can face significant financial losses.

In Hungary, the right to deduct VAT on incoming invoices can be claimed within a limitation period. Therefore, after the expiration of this period, VAT can no longer be deducted - which can result in a financial disadvantage (tax loss) for taxpayers.

Year-end checking is important because, as a general rule, taxpayers must exercise their right to tax deduction within the tax assessment period.


How Long Can the Right to Deduct VAT Be Claimed?

The regulations on VAT allow us to exercise our right to deduct VAT by the end of the year following the tax assessment period.  If this is neglected, the right to deduct VAT can still be claimed within the limitation period through self-assessment.

For example, deductible VAT from 2022 can be claimed in December 2023 or – in the case of quarterly declarants – in the fourth quarter VAT return of 2023 without self-assessment. For periods before 2022, the right to deduct can be claimed within the limitation period via self-assessment.

As the end of the year approaches,  it is worthwhile to check that we have exercised our right to deduct VAT for every invoice that allows for it, according to the legal possibilities and extents.

Typical Cases Where Additional Tax Deduction Opportunities May Be Found

It often happens that certain supplier invoices do not make it into the VAT analytics, for example, if: we receive them late, they get misplaced, are not recorded in our enterprise resource planning system, or the export from our accounting system, which forms the basis of the VAT analytics, does not fully include the invoices that can be considered for the period - thus the tax deduction was missed.

The Importance of VAT Checking - Customer Invoices

We must not forget about the issuing side either, i.e., whether we have fully included our issued invoices in our VAT return, and whether we have properly declared and paid the VAT amount on our VAT-inclusive invoices.

Every unsubmitted or improperly handled invoice not only represents an additional administrative burden but also means an increase in the likelihood of getting a fine and other financial risks.

If VAT payment is omitted for certain invoices, we not only face a tax shortage but also a tax penalty of 50% of the tax shortage may be determined by the Tax Authority. Incomplete, undeclared invoices may also incur a penalty for negligence, as the declaration data were not adequate.

The NAV (Tax Authority of Hungary) expects Hungarian taxpayers to reconcile their accounting with their tax returns and tax accounts at least once a year (including incoming and outgoing items) - and to handle discrepancies via self-assessment, RTIR-correction, or supplier reconciliation.

VAT Scan goes through digital invoices on the computer screen.

The Role of Technology concerning VAT Refunds and Compliance

Technology is developing rapidly and brings significant changes in the world of taxation. Today, in NAV's online invoice system, all issued invoices must be available, domestic deductible received invoices can also be queried, and the tax account can be downloaded as structured electronic data to facilitate easier technology processing and analysis.

Many tax authority inquiries start because there is a discrepancy between the VAT payable on invoices for a given period in the online invoice system and the payable data reported in the relevant return.

The underlying cause can be traced back to several factors, for example, the omission of online invoice data reporting, or differences between the information given in the data reporting and those that were included in the VAT analytics, even in terms of the performance date, which fundamentally determines the classification of the VAT payment period. Consequently, it is advisable to not only check for missing invoices or invoices not yet deducted but also to examine data discrepancies between systems.

You can significantly speed up and at the same time simplify the checking process if you do not try to solve the emerging problems manually, but use automated solutions provided by technology for analysis - based on which you can take further steps; whether it is examining the right to deduct VAT for a particular invoice, or including previously undeclared invoices in the declaration (within the framework of self-assessment),or even revealing the need for accounting correction.

OUR Solution - VAT Scan 360°

What to Watch Out for Regarding VAT Obligations?

In Hungary, taxpayers must pay special attention to exercising their right to deduct VAT.

This is important not only during the tax assessment period but also until the end of the following year. Failing to exercise the right to deduct VAT can only be corrected within the framework of self-assessment (but only within the limitation period).

It is important to note that this rule does not apply to transactions in which the customer is liable for VAT payment (reverse charge transactions, including intra-Community acquisitions and services received within and outside the Community),nor to import transactions where the payable VAT amount is self-assessed by the importer or indirect customs representative. In these cases, only the 5-year limitation rule applies, and the deductible VAT amount can only be included in the declaration in which the declaration of the payable VAT amount is due.

Furthermore, it is essential for taxpayers to reconcile their accounting with their tax account and VAT return data at least once a year to avoid problems and risks arising from discrepancies.

VAT Return in before the end of 2023 - with the Help of Experts & Technology  

During the end-of-the-year rush of 2023, it is useful for companies to thoroughly review their VAT obligations, especially if we still find items deductible by the end of the year, thus reducing our tax position or increasing the amount of tax reclaim. The synergy of modern technology and expert advice allows companies to fully exploit their reclaim opportunities without causing any additional legal risks and financial losses due to declaration errors or missed VAT payments.

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