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27.10 VAT Accounting in PCN (Class 4 Accounts)

VAT Accounts in PCN Structure​

VAT accounts are part of PCN Class 4 (Third-Party Accounts). All VAT transactions must be recorded using PCN Class 4 VAT accounts to ensure compliance and proper reporting.

Main VAT Accounts​

Account 44551: Input VAT Recoverable​

Purpose: Records VAT paid on purchases (input VAT).

Usage:

  • Debit: When paying VAT on purchases
  • Credit: When offsetting against output VAT in return
  • Balance: Shows recoverable VAT not yet offset

Example:

  • Purchase €117 inventory (€100 + €17 VAT)
  • Debit: Account 44551 - €17.00
  • Debit: Account 601 (Purchases) - €100.00
  • Credit: Account 401 (Suppliers) - €117.00

Account 44571: VAT Payable​

Purpose: Records net VAT payable to tax authorities.

Usage:

  • Debit: When paying VAT to authorities
  • Credit: When net VAT is calculated (output VAT - input VAT)
  • Balance: Shows VAT owed to authorities

Example (VAT Return Filing):

  • Output VAT: €1,000
  • Input VAT: €600
  • Net VAT: €400
  • Debit: Account 44551 - €600.00
  • Credit: Account 44581 - €1,000.00
  • Credit: Account 44571 - €400.00

When Paying VAT:

  • Debit: Account 44571 - €400.00
  • Credit: Account 512 (Bank) - €400.00

Account 44581: VAT on Sales (Output VAT)​

Purpose: Records VAT collected on sales (output VAT).

Usage:

  • Credit: When collecting VAT on sales
  • Debit: When offsetting against input VAT in return
  • Balance: Shows VAT collected not yet remitted

Example:

  • Sell €117 goods (€100 + €17 VAT)
  • Debit: Account 530 (Cash) - €117.00
  • Credit: Account 701 (Sales) - €100.00
  • Credit: Account 44581 - €17.00

VAT Account Structure​

Sub-Accounts for Different Rates​

You can create sub-accounts to track VAT by rate:

Structure:

  • 44581.001: VAT on sales at 17%
  • 44581.002: VAT on sales at 14%
  • 44581.003: VAT on sales at 8%
  • 44581.004: VAT on sales at 3%

Benefits:

  • Easier VAT return preparation
  • Better tracking by rate
  • Simplified reporting

VAT Return Accounting Process​

Step 1: Calculate Period Totals​

  • Output VAT: Sum all credits to Account 44581
  • Input VAT: Sum all debits to Account 44551
  • Net VAT: Output VAT - Input VAT

Step 2: Record VAT Return​

If Net VAT Payable:

  • Debit: Account 44551 (Input VAT) - Total input VAT
  • Credit: Account 44581 (Output VAT) - Total output VAT
  • Credit: Account 44571 (VAT Payable) - Net VAT

If Net VAT Refundable:

  • Debit: Account 44551 (Input VAT) - Total input VAT
  • Credit: Account 44581 (Output VAT) - Total output VAT
  • Debit: Account 44571 (VAT Payable) - Net refund (negative balance)

Step 3: Pay VAT​

When Paying VAT:

  • Debit: Account 44571 (VAT Payable)
  • Credit: Account 512 (Bank Account)

When Receiving Refund:

  • Debit: Account 512 (Bank Account)
  • Credit: Account 44571 (VAT Payable)

VAT Account Reconciliations​

Monthly Reconciliation​

  • Output VAT: Verify all sales VAT recorded
  • Input VAT: Verify all purchase VAT recorded
  • Balances: Check account balances match calculations
  • Discrepancies: Investigate and correct any differences

Quarterly Reconciliation​

  • Period Totals: Sum all VAT transactions for quarter
  • VAT Return: Compare to VAT return figures
  • Payments: Verify all VAT payments recorded
  • Refunds: Verify all VAT refunds received

Common VAT Accounting Entries​

Sale with VAT​

Transaction: Sell €117 goods (€100 + €17 VAT)

PCN Entry:

  • Debit 530 (Cash): €117.00
  • Credit 701 (Sales): €100.00
  • Credit 44581 (VAT on sales): €17.00

Purchase with VAT​

Transaction: Purchase €234 equipment (€200 + €34 VAT)

PCN Entry:

  • Debit 218 (Equipment): €200.00
  • Debit 44551 (Input VAT): €34.00
  • Credit 512 (Bank): €234.00

VAT Return Filing​

Transaction: File VAT return (Output: €1,000, Input: €600, Net: €400)

PCN Entry:

  • Debit 44551 (Input VAT): €600.00
  • Credit 44581 (Output VAT): €1,000.00
  • Credit 44571 (VAT Payable): €400.00

VAT Payment​

Transaction: Pay €400 VAT to authorities

PCN Entry:

  • Debit 44571 (VAT Payable): €400.00
  • Credit 512 (Bank): €400.00

VAT Account Balances​

Normal Balances​

  • Account 44551 (Input VAT): Debit balance (VAT paid)
  • Account 44581 (Output VAT): Credit balance (VAT collected)
  • Account 44571 (VAT Payable): Credit balance (VAT owed) or Debit balance (VAT refundable)

After VAT Return​

  • Account 44551: Should be zero (offset against output VAT)
  • Account 44581: Should be zero (offset against input VAT)
  • Account 44571: Shows net VAT payable or refundable

Luxembourg Compliance Note​

PCN Requirements:

  • Use PCN Accounts: All VAT must use Class 4 accounts
  • Proper Classification: Use correct accounts (44551, 44571, 44581)
  • Sub-Accounts: Can use sub-accounts for detailed tracking
  • Reconciliation: Reconcile VAT accounts regularly
  • Documentation: Maintain supporting documentation

Common Errors:

  • Wrong Accounts: Using non-PCN accounts for VAT
  • Incorrect Entries: Reversing debit/credit entries
  • Missing Entries: Not recording all VAT transactions
  • Unreconciled: Not reconciling VAT accounts

Think It Through​

At month-end, Marie's restaurant has €2,000 in Account 44581 (output VAT) and €1,200 in Account 44551 (input VAT). How should she record the VAT return? What will the account balances be after the return?

Concepts in Practice​

Monthly VAT Accounting

Le Petit Bistro monthly VAT process:

Month-End Balances:

  • Account 44581 (Output VAT): €2,000 credit
  • Account 44551 (Input VAT): €1,200 debit

VAT Return Entry:

  • Debit 44551 (Input VAT): €1,200.00
  • Credit 44581 (Output VAT): €2,000.00
  • Credit 44571 (VAT Payable): €800.00

After Entry:

  • Account 44551: €0.00
  • Account 44581: €0.00
  • Account 44571: €800.00 credit (VAT to pay)

Payment Entry:

  • Debit 44571 (VAT Payable): €800.00
  • Credit 512 (Bank): €800.00

Final Balances:

  • All VAT accounts: €0.00
  • VAT return filed and paid