Pats.lv users and self-employed often approach us with valuable questions. We’re sharing an answer to one of these questions – it may help you ensure the correct recording of expenses in your business activity journal!
I want to purchase a phone for business purposes for EUR 800. On the seller’s website, there is an option to select the price excluding VAT. Can I, as a self-employed VAT payer, buy this phone at the price excluding VAT? Can I buy it on an instalment plan, or do I need to pay the full amount upfront?
If you are a VAT payer, then according to the VAT law, a self-employed person has the right to purchase this phone using the reverse VAT charge. What does this mean? If you pay by bank transfer, the supplier will issue an invoice with a VAT rate of 0%. Note that this does not apply to cash payments!
A self-employed person is free to purchase the item on an instalment plan, paying in parts, or by paying the full amount upfront. If you pay the entire amount upfront, the transaction is disclosed, indicating the full amount. Since the item’s value is under EUR 1,000, the expenses can be immediately attributed to business expenses. If the invoice is issued with the reverse VAT charge applied, you can register this transaction in the Pats.lv system with the description “Goods, Materials Receipt – Low-Value Inventory up to EUR 1,000”. In the transaction registration, select 0% for the VAT rate and R4 for the transaction type.
If the item is purchased on an instalment plan, then initially, when entering the transaction, indicate the total transaction amount as per the supporting document but select “None” for the payment type. After that, add the payments in parts according to the monthly payments.
If the value of the purchased device exceeds EUR 1,000, it is considered a fixed asset and is to be gradually depreciated. When registering the expense, specify that it is a “Fixed Asset Purchase,” selecting VAT at 0%. Based on this expense, you will need to create a fixed asset card in Pats.lv, which will then be used to calculate depreciation.
If the fixed asset is purchased on an instalment plan, there are two ways to register it:
Note! If the phone is used for both business and personal needs, the transaction amount must be proportioned according to the law. In this case, you can register up to 70% of the item’s cost as an expense. If the item is a fixed asset, apply the proportion when creating the fixed asset card to ensure correct depreciation calculations.
There are many different expenses that can be deducted, and you may not always think of all of them. Where to find advice?
