In France, if a company subject to value-added tax (VAT) declares an incorrect amount, it must make adjustments to its VAT account. VAT adjustments are more than simple administrative tasks. They are important steps to ensure tax compliance, accurate accounts and improved liquidity management. They also help maintain the company's credibility with the tax office. Complying with this requirement can help companies avoid financial sanctions and legal consequences.

VAT adjustments can help companies correct statement errors and maintain tax compliance. In this article, we explain what French companies need to know about VAT adjustments.

What's in this article?

• What are VAT adjustments?
  
• Why are VAT adjustments required?
  
• Why are VAT adjustments important?
  
• How are VAT adjustments made?
  
• How Stripe Tax can help
  

What are VAT adjustments?

A VAT adjustment is the difference between the amount of VAT filed and the amount that should have been filed. If the discrepancy is less than €4,000, the company can correct the error using a simplified adjustment process. Above that threshold, an amended VAT filing is required.

All companies that are subject to VAT in France must file VAT. VAT liability typically applies to commercial or industrial activities, whether the business chooses the normal or simplified tax regime. A business or individual becomes liable for VAT if their sales exceed specific thresholds.

VAT filings or collections can be incomplete, even if submitted by the VAT filing deadlines. VAT adjustments make it possible to correct errors or omissions in previous filings and can help guarantee a company's compliance with its tax obligations.

Why are VAT adjustments required?

The pace of business can make financial accounting difficult. This can cause inaccurate or incomplete VAT filings. VAT adjustments allow businesses to correct discrepancies and maintain compliance with tax requirements.

Several situations can cause companies to make VAT adjustments:

• Calculation errors: Calculation errors in the tax collected on sales or in deductible VAT on purchases require VAT adjustment.
  
• Omissions: Sometimes, sales or purchase invoices are not accounted for in the initial filing. This happens when a company applies VAT on receipt and is still waiting for the payment of certain invoices when filing. This situation can complicate financial accounting and result in an amount that requires VAT adjustment.
  
• Change in a product's use: VAT must be adjusted when a product is initially used in an activity that results in a VAT deduction and then is subsequently used in another activity where this deduction does not apply (or vice versa).
  
• Adjustment linked to capital assets: VAT deductibles on capital assets can be subject to adjustments over several years. These adjustments occur when a product's use has evolved. For example, products used for non-professional purposes or sometimes used for activities not subject to VAT can lead to adjustments.
  
• Pro rata adjustments of VAT deductions: A company participating in activities both subject and not subject to VAT must apply a deduction coefficient (i.e. pro rata). This coefficient can change from one year to another and depends on the actual activity breakdown. A pro rata modification leads to the adjustment of the initially deducted VAT.
  
• Credits or invoice cancellation: Credits issued after filing and the cancellation of sales invoiced with VAT can lead to an amount of VAT that needs to be adjusted.
  

Why are VAT adjustments important?

For both the company and the tax office, it is important to understand VAT adjustments:

• Tax compliance: VAT is a complex tax. Adjustments ensure that the company adheres to regulations and files the exact amount of VAT due or to be refunded. Adjustments can help businesses avoid sanctions or tax audits if they don't file enough VAT.
  
• Financial management: VAT adjustments can directly impact a company's finances. If the company overpays tax, its financial resources are effectively reduced. Inversely, if the company pays less than it owes, it risks having to pay a significant lump sum. This can lead to unforeseen financial difficulties, particularly if penalties are applied.
  
• Stability and predictability: VAT adjustments can help a company avoid an accumulation of errors that can lead to unexpected payment amounts. Careful management of VAT can improve financial planning and facilitate related cash flow forecasting.
  

How are VAT adjustments made?

The VAT adjustment process varies according to the amount of the discrepancy identified and the tax regulations in place. If the error is minor (i.e. less than €4,000 in France), it can be corrected directly in the next VAT filing by using the boxes reserved for adjustments.

When the VAT amounts to be adjusted are higher, companies must submit a corrected VAT filing to the tax office. This applies if the company is subject to the simplified tax regime (CA12) or the normal regime (CA3).

If the VAT collected is less than the deductible VAT, the business can claim VAT credit.

Consequences of failing to adjust VAT

It is always recommended to adjust VAT as soon as an error is detected. If a business voluntarily makes a correction and pays quickly, penalties could be reduced (e.g. interest on late payments) or waived, especially for minor infractions.

If a company does not adjust VAT, several sanctions are possible:

• Interest on late payments: The rate is set at 0.2% per month (i.e. 2.4% annually). These fees are calculated from the first day of the month following when VAT should have been paid until the pay date.
  
• Markups: A markup of 5% can be applied when filings contain errors or omissions that lead to payments less than the amount of VAT due.
  
• Fines: In addition to markups and interest on late payments, other fines can be imposed. For example, a penalty of €15 is applied for omissions or inaccuracies in required records or documents. Greater fines can be levied for specific infractions (e.g. those related to VAT reverse charges or VAT missing from invoices from a supplier who is located abroad or in a French overseas department). These infractions are considered the most serious because they can lead to a loss of tax revenue for the government.
  

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Stripe Tax helps you monitor your obligations and alerts you when you exceed a sales tax registration threshold based on your Stripe transactions. In addition, it automatically calculates and collects sales tax, VAT and goods and services tax (GST) on both physical and digital goods and services – in all US states and more than 100 countries.

Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard or using the application programming interface (API).

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration or add tax collection with the click of a button in the Stripe Dashboard.
  
• Register to pay tax: Let Stripe manage your global tax registrations and benefit from a simplified process that pre-fills application details – saving you time and simplifying compliance with local regulations.
  
• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.
  
• Simplify filing: Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.
  

Learn more about Stripe Tax or get started today.