Features of individual entrepreneurs working with VAT in 2021

To calculate value added tax, you can use this free online VAT calculator directly on this website.

Value added tax, abbreviated as VAT, is one of the mandatory payments of the general taxation system. It is paid by almost all individual entrepreneurs on OSNO, as well as importers of goods into the territory of the Russian Federation and tax agents. Entrepreneurs in special regimes, as a general rule, do not transfer value added tax to the budget and do not reimburse it.

But what if the counterparty asks to issue a VAT invoice? Does an entrepreneur have the right to do this on UTII, simplified tax system, PSN and unified agricultural tax? Let's take a closer look at whether an individual entrepreneur can work with VAT if he applies special tax regimes. Before moving on to cover this issue, let's say a few words about what value added tax is.

Which individual entrepreneurs are VAT payers?

In 2021, entrepreneurs are required to pay VAT:

• those on OSNO (if they have not received exemption);
• transferred to the general system upon loss of the right to use the special regime;
• applying Unified Agricultural Tax (from January 1, 2021);
• combining OSNO with UTII or PSN (in terms of income from the general regime);
• working in special modes when issuing VAT invoices, importing goods into the Russian Federation and performing the duties of a tax agent.

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If an individual entrepreneur in a special regime decides to pay VAT

So, after weighing all the pros and cons, the individual entrepreneur decided to switch to the basic taxation system. There is one limitation for this - you can voluntarily change the tax regime only from the next calendar year. If an individual entrepreneur uses the simplified tax system, then he must submit to the Federal Tax Service a notice of refusal to use the simplified system by January 15. An application for refusal to pay UTII is submitted within 5 working days from the date of termination of the “imputed” activity or loss of the right to apply this special regime.

Having switched to OSNO, it is important not to forget to pay the tax and report on time for the last period in which the special regime was applied. We will also have to resolve some accounting issues related to the integration of the old and new taxation systems.

VAT and OSNO

As mentioned above, value added tax is a mandatory payment of the general taxation system. It is charged by the seller on the cost of goods, works and services sold to the buyer. There are two types of VAT:

• Imported. Paid when importing goods into the territory of the Russian Federation. All individual entrepreneurs are required to pay “import” VAT, regardless of the taxation system used. At the same time, if an entrepreneur uses the simplified tax system of 6%, UTII or PSN, he will not be able to take the tax into account as expenses. Individual entrepreneurs on a simplified basis with the object “Income minus expenses” can include the paid VAT as expenses, but do not have the right to reimburse it from the budget.
• Interior. Transferred when carrying out transactions within the country. In this case, the tax is paid by individual entrepreneurs on OSNO, as well as by tax agents. Special regime officers pay it only when issuing an invoice to the counterparty with the allocated amount of VAT.

Despite the fact that VAT is required to be paid on OSNO, the law allows for exemption from it in a number of cases.

Features of VAT reporting

According to the law, interaction with the tax service regarding VAT, that is, the submission of declarations, and, if necessary, explanations to them, occurs in electronic form. In addition to computer equipment and Internet access, you will need to enter into an agreement with an electronic document management operator, issue a digital signature and install special software.

As you can see, reporting activities require preparation. In this regard, the question often arises: can individual entrepreneurs work with VAT and submit returns on paper? No, the Tax Code does not provide for such preferences for entrepreneurs. The only exception is if the individual entrepreneur does not pay his own VAT, but only acts as an agent for this tax. For example, if an entrepreneur uses the simplified tax system to rent premises from a municipal authority.

In what cases may an individual entrepreneur on OSNO not pay value added tax?

An entrepreneur applying the general taxation system may not pay VAT:

• when carrying out transactions not subject to value added tax. There is no need to pay VAT if the goods (work, service) being sold are specified in Art. 149 of the Tax Code of the Russian Federation.
• if the operation performed is not subject to value added tax. You can familiarize yourself with the list of situations when goods sold (work, services) are not subject to VAT in Article 146 of the Tax Code of the Russian Federation.
• If over the last 3 months the amount of income of the individual entrepreneur did not exceed 2 million rubles and there was no sale of excisable goods. If the specified conditions are met, the entrepreneur can receive an exemption from VAT for the next 12 months.

We will consider the deadlines for submitting the declaration and paying the tax, as well as the specifics of submitting reports to the Federal Tax Service.

Who should pay VAT. Can an individual entrepreneur work with taxes?

This is an indirect tax at the federal level, which involves the withdrawal of part of the added value of a product to the state budget. The final consumer pays the tax amount, since the amount is included in the price. The buyer is the actual payer of this tax.

Enterprises that sell goods or services are considered legal payers. The individual entrepreneur makes the calculations and pays the funds to the state budget. To do this, you need to register with the tax office.

VAT payers:

1. Individual entrepreneurs who carry out taxable transactions.
2. Organizations carrying out taxable transactions.
3. Persons who transport goods across the customs border of the Russian Federation.

VAT is the difference between the proceeds from the sale of goods and the amount paid for raw materials purchased from third parties. Some types of activities, as well as special goods and services, are exempt from VAT in full or in part. The tax amount is collected in advance, without taking into account the fact of sale of the goods.

VAT and individual entrepreneurs on the simplified tax system, UTII and PSN

As a general rule, entrepreneurs applying special tax regimes do not have to pay VAT. There are only three exceptions:

• import of goods into the territory of the Russian Federation;
• issuing an invoice with the allocated VAT amount.
• fulfilling the duties of a tax agent.

In all these cases, the individual entrepreneur is obliged to pay value added tax to the budget and submit a declaration. However, this payment cannot be reimbursed from the budget. Only individual entrepreneurs on OSNO have the right to do this. The only ones who can take into account the costs of paying tax are entrepreneurs using the simplified tax system of 15%.

Taking into account the above, we can draw the following conclusion: individual entrepreneurs in special modes can work with VAT, but cannot reimburse it. In this connection, when choosing a taxation system, it is worth paying attention to what regime the counterparties apply. If the majority of partners are on OSNO, then it would be more advisable to switch to the same mode. This will allow VAT to be deducted and reimbursed from the budget.

Individual entrepreneur with VAT: pros and cons

So should an entrepreneur become a VAT payer? In each case, this issue must be resolved individually. The advantages of working with this tax include the absence of restrictions in the choice of counterparties. As a payer of this tax, an individual entrepreneur can count on cooperation even with the largest buyers. After all, they usually use OSNO and want to claim input VAT for deduction.

The disadvantages are also obvious - you will have to calculate and pay taxes, keep records and file returns. And its calculation and accounting in some places is difficult for beginners. In addition, tax authorities are especially sensitive to VAT-related violations and carefully check reporting. After all, this tax is one of the significant sources of budget funds. With the slightest flaws, not only your own, but also on the part of the counterparty, there is a risk that the Federal Tax Service will not recognize the deduction. And perhaps you will have to defend your right to it in arbitration court.

VAT and Unified Agricultural Tax

It is not for nothing that we have allocated entrepreneurs for agricultural tax purposes in a separate section. Starting from 2021, individual entrepreneurs using the unified agricultural tax are required to pay value added tax. These changes were made to the Tax Code by Law of November 27, 2021 No. 335-FZ.

Let us recall that until 2021, agricultural producers and those who provided services to them were exempt from VAT, as were individual entrepreneurs using the simplified tax system, UTII and PSN. Starting in 2021, the situation has changed and those who apply the unified agricultural tax have been made VAT payers. They are the only ones of all special regimes who must transfer value added tax to the budget. But there are some exceptions. Let's look at them.

In what cases may an individual entrepreneur using the Unified Agricultural Tax not pay VAT?

The specifics of exempting agricultural tax entrepreneurs from the obligation to pay value added tax are specified in Art. 145 Tax Code of the Russian Federation. Thus, individual entrepreneurs who meet one of the following conditions may not pay VAT in 2021:

• the amount of income for 2021 did not exceed 100 million rubles. Please note that only income from activities on the Unified Agricultural Tax is taken into account. This amount will decrease every year (see table No. 1);
• The transition to the unified agricultural tax and exemption from VAT were made in one year.

Table No. 1. Amounts of income at which individual entrepreneurs on the Unified Agricultural Tax can receive VAT exemption

Year for which income is calculated	Maximum income (rub.)
2018	100 000 000
2019	90 000 000
2020	80 000 000
2021	70 000 000
2021 and beyond	60 000 000

In what cases will an individual entrepreneur using the Unified Agricultural Tax be unable to obtain an exemption from VAT?

1. Income for the past year exceeded the limits indicated in the table.
2. The entrepreneur has been selling excisable goods for the last three months.
3. The individual entrepreneur has not confirmed his right to be exempt from paying this tax.

What needs to be done to avoid paying VAT for individual entrepreneurs on the Unified Agricultural Tax

In order to receive an exemption from paying value added tax, agricultural tax entrepreneurs must draw up a written notification. The form of this document was approved by Order of the Ministry of Finance of Russia dated December 26, 2021 No. 286n and comes into force on April 1, 2021.

The notification must be submitted to the Federal Tax Service at the place of registration before the 20th day of the month from which the individual entrepreneur applies the exemption. After sending the notification, the entrepreneur will be able not to pay VAT for 12 months.

note

that you cannot refuse this benefit until it ends. The only case is receiving income in excess of the specified limit. If this happens, the individual entrepreneur is considered to have lost the right to exemption from value added tax from the 1st day of the month in which the excess was made.

What VAT obligations do entrepreneurs have on the Unified Agricultural Tax?

Starting from 2021, individual entrepreneurs subject to agricultural tax who have not received an exemption from paying value added tax must:

• charge VAT on the amount of sales of goods (works, services);
• pay taxes to the budget within the time limits established by law;
• submit a declaration quarterly (electronically only);
• issue invoices to counterparties with the allocated tax amount;
• keep books of purchases and sales.

But along with the obligation to pay VAT, agricultural producers received the right to reimbursement from the budget. This is a plus for those who work with companies on OSNO and issue them invoices with the allocated tax amount. But in general, entrepreneurs on the Unified Agricultural Tax have lost more than they received from the introduction of VAT. The obvious disadvantages are:

• an increase in the tax burden for those individual entrepreneurs who do not cooperate with VAT payers;
• complication of accounting, since you will have to additionally maintain books of sales and purchases, issue invoices, and submit quarterly reports;
• additional costs for an accountant, since it will be difficult for those who have not previously worked with him to immediately understand the intricacies of accounting and VAT calculation;
• costs of organizing an electronic document of turnover with the tax office for submitting value added tax reports;

Having considered in what cases an individual entrepreneur can and should work with VAT, we will briefly discuss the timing of tax payment and reporting.

How much to pay and when

In the Russian Federation the rate is 18%. For some types of goods, a reduced rate of 10% is provided: children's goods, food products, agricultural products, printed publications.

The tax period is a quarter. Each quarter has 3 months. The payment amount is set for a quarter and is paid in three equal installments every month, no later than the 25th. For example, for the first quarter of 2018, you must pay in three equal installments by April 25, May and June 2018, respectively.

Table 1 - Tax payment deadlines in 2021

Period	Until when to pay VAT?
IV quarter 2021	January 25, 2021 February 25, 2021 March 25, 2021
I quarter 2021	April 25, 2021 May 25, 2021 June 27, 2021
II quarter 2021	July 25, 2021 August 25, 2021 September 26, 2021
III quarter 2021	October 25, 2021 November 25, 2021 December 26, 2021

The law allows for earlier tax payment, but you must wait until the end of the quarter. For example, for the first quarter of 2021 you can pay 2/3 of the amount or in full from April 1, 2021. Late payment may result in a penalty.

Individual entrepreneurs under special tax regimes who issued an invoice with allocated VAT during the reporting period must pay the tax in a single payment by the 25th of the month following the reporting period. For example, if an individual entrepreneur carried out a corresponding transaction in the first quarter, he is obliged to pay the entire tax amount by April 25, 2019.

When and in what form do I need to report value added tax?

Starting from 2015, VAT returns are submitted only in electronic form via telecommunication channels (TCC) through electronic document management (EDF) operators. Only individual entrepreneurs exempt from VAT and tax agents who are not payers of this payment can submit reports on paper.

Value added tax reporting in 2021 must be submitted within the following deadlines:

• for the first quarter – until April 25;
• for the second quarter – until July 25;
• for the third quarter – until 25.10;
• for the fourth quarter – until January 27, 2020.

Note

: If the deadline falls on a weekend or holiday, it is moved to the next working day. As, for example, in the case of submitting reports for the 4th quarter of 2021. Since January 25, 2021 falls on a Saturday, the deadline is moved to Monday – January 27.

Individual entrepreneur reporting

VAT payers submit returns online through an electronic document management operator. Reports to be submitted:

1. VAT declaration (once a quarter).
2. Declaration 3-NDFL (once a year).
3. Declaration 4-NDFL (at the beginning of activity or within a month from the moment of 50% increase or decrease in income).
4. Information on the average number of employees (once a year).
5. Calculation of 6-NDFL (once a quarter).
6. Certificates 2-NDFL (once a year).
7. Calculation of insurance premiums.

Table 2 - Deadlines for submitting the declaration

Period	By what date should the VAT return be submitted?
IV quarter 2021	January 25, 2021
I quarter 2021	April 25, 2021
II quarter 2021	July 25, 2021
III quarter 2021	October 25, 2021

If the last day of submission is a non-working day, then the report will be accepted the next day and this will not be considered a violation. If an individual entrepreneur operates without VAT, then the amount of reporting is reduced. Individual entrepreneurs will be required to submit a tax return annually by April 30 of the following year. The individual entrepreneur also keeps a book of income and expenses.

When should VAT be paid?

Tax transfers for the reporting period are made in three parts: 1/3 each month until the 25th. Let’s say the amount of VAT payable for the 1st quarter was 60,000 rubles, the tax should be transferred:

• until April 25 – 20,000 rubles (60,000: 3);
• until May 25 – 20,000 rubles;
• until June 25 – 20,000 rubles.

To summarize the above, let us summarize the information received:

• Individual entrepreneurs under special regimes are required to remit VAT when issuing an invoice with the allocated tax amount, as well as when importing goods into the Russian Federation and when performing the duties of a tax agent.
• Entrepreneurs on the Unified Agricultural Tax from 2021 pay value added tax, but can receive an exemption from it.
• Reporting for this tax is submitted only in electronic form via TKS through electronic document management operators, with the exception of certain cases.
• The tax is paid quarterly in three installments of 1/3 of the tax payable for the previous reporting period.
• Individual entrepreneurs in special regimes (except for the Unified Agricultural Tax) do not have the right to reimburse VAT from the budget.

Forgot to switch to “simplified” - you will end up subject to VAT

As a rule, when registering as an individual entrepreneur, freelancers switch to a simplified tax regime with payment of 6% of the income received. VAT is not paid on simplified products. However, to switch to a simplified tax system, you need to submit a special notification to the tax authorities . If you do not submit a notification, you will not be able to apply the simplified taxation regime, which means you will automatically remain in the general regime, in which you need to pay VAT (let me remind you, the tax rate from 2021 is 20%).

Therefore, when registering an individual entrepreneur, immediately submit a notification about the application of the simplified taxation regime.

VAT rate for individual entrepreneurs

The basic VAT rate for both organizations and individual entrepreneurs is 18%. However, the Tax Code of the Russian Federation provides for a reduced rate of 10%, applied to types of goods and services established by law (for example, children's goods, medicines, food products, printed materials and transport services). The zero VAT rate is used mainly when exporting goods or services. Accounting for VAT at a 0% rate has its own characteristics and requires a package of documents regulated by Article 164 of the Tax Code of the Russian Federation.

[B=63] If for 3 calendar months the amount of revenue (not income, namely revenue) from the sale of goods (excluding excisable goods), works or services in the aggregate turned out to be less than 2 million rubles, then by virtue of Article 145 of the Tax Code of the Russian Federation an individual entrepreneur may be exempted from fulfilling the duties of a VAT payer, even if he applies the general taxation system. At the same time, he no longer needs to keep VAT records, but he also loses the right to highlight tax in invoices. This, as a rule, is unprofitable for those entrepreneurs who work with individual entrepreneurs and organizations that pay VAT. After all, in this way all transactions take place without the right to provide a tax deduction.

IP and VAT when importing goods and services

Operations for the import of goods and services are divided into 3 types:

• goods are imported from the EAEU countries;
• goods are imported from countries outside the EAEU;
• on import of services.

If goods are imported into the EAEU (Russian Federation, Belarus, Armenia, Kazakhstan, Kyrgyzstan), then import VAT is paid to the Federal Tax Service. In addition, a VAT return is submitted to the tax authority by the 20th day of the month following the month the goods were imported into the Russian Federation. The declaration is sent electronically if the number of individual entrepreneurs exceeds 100 people. Otherwise, the declaration can be submitted on paper. The tax must also be paid no later than the 20th day of the month following the month the transaction was concluded.

VAT is calculated using the following formula:

VAT=NBxST , where

NB – tax base equal to the cost of imported goods;

ST – VAT rate (10% or 18%).

If goods are imported from countries outside the EAEU, then VAT is calculated using a different formula:

VAT = (TS+TP+AKTs)xST , where

TC – contract value (customs) of imported goods;

TP – import duty;

ACC – excise tax (if the goods are excisable).

In this case, the ND will no longer be paid to the tax office, but to the Federal Customs Service. A declaration on goods is also submitted to the same authority and this happens upon their import. At the same time, there are 4 types of declarations submitted to customs:

• by goods;
• for transit;
• passenger;
• to the vehicle.

The declaration can be submitted either electronically or on paper.

Next, we will consider VAT, which is paid when importing services. In this case, an individual entrepreneur is considered not as a VAT payer, but as a tax agent of a foreign seller of services. At the same time, the main thing is that the sale of services takes place in the Russian Federation. VAT is withheld from the contract amount from the foreign seller, that is, he receives payment minus VAT. VAT on the import of services is paid to the budget when paying a foreign seller of services. The VAT return must be submitted to the Federal Tax Service by the 25th day of the month following the reporting quarter, that is, the quarter in which these services were paid for (

Answer: pay with confidence

The supplier issues a document with VAT because its tax system requires it. You won’t be able to persuade him even for gifts for the New Year or March 8th.

You simply pay the invoice with VAT, and in the purpose of payment indicate “including VAT 18%”. There is no problem with this.

Entrepreneurs sometimes write to us that if they pay a VAT invoice, the tax office will automatically transfer them to the general taxation system. It is a myth.

If an entrepreneur works on the simplified “income minus expenses” basis, he can include the VAT amount in expenses along with the goods and services he purchased. The Tax Code speaks about this. To confirm expenses, keep invoices.

Another situation is if you work on a simplified basis, but the client asked you to issue him an invoice with VAT. He works with VAT and will be able to offset it. He is comfortable, but you are not. If you issue an invoice, you will have to:

• pay this VAT to the tax office by the 25th day of the month following the quarter;
• submit your VAT return electronically.

If you issued an invoice to the buyer with VAT, and then paid the supplier's invoice with VAT, VAT from the supplier cannot be accepted for offset.

The question of who pays VAT is answered by paragraph 1 of Article 168 of the Tax Code of the Russian Federation, according to which any entrepreneur or organization is obliged, when selling goods (work, services), in addition to the price (tariff) of the goods (work, services) sold, to present for payment to the buyer these goods (works, services) the corresponding amount of value added tax. Thus, payers of this tax are both organizations and individual entrepreneurs (Article 143 of the Tax Code of the Russian Federation).

However, if an individual entrepreneur applies a preferential tax regime: simplified tax system, UTII or PSN, then he does not have to pay VAT. In addition, an individual entrepreneur may be exempt from fulfilling the duties of a taxpayer under Article 145 of the Tax Code of the Russian Federation. However, an entrepreneur in special regimes can act as a tax agent. Such situations are directly regulated by tax legislation. In addition, VAT is charged to all persons who move goods across the Russian state border. This VAT is called customs VAT, and even those individual entrepreneurs who apply special tax regimes are required to pay it.

Individual entrepreneurs pay VAT at their place of residence, since they register with the tax authorities there. The timing and procedure for tax payment, as well as the submission of tax returns for individual entrepreneurs, do not have any special features compared to other payers.

Punishment of individual entrepreneurs for improper performance of duties as a VAT payer

What will the tax authorities punish for?	How will they punish
For submitting a declaration in violation of the method of filing (not according to the TKS)	A fine of 200 rubles will be charged. (Article 119.1 of the Tax Code of the Russian Federation) and will suspend transactions on accounts if, after 10 working days from the date established for submitting the declaration, it is not submitted according to the TKS (clause 1, clause 3, Article 76 of the Tax Code of the Russian Federation).
For late submission of the declaration	A fine of 5% of the amount of tax payable reflected in the “overdue” declaration will be assessed for each full/incomplete month from the established day for submitting the declaration, but not more than 30% of this amount and not less than 1000 rubles (clause 1 of Art. 119 of the Tax Code of the Russian Federation). Our Calculator will help you determine the amount of the fine. The account will be blocked if, after 10 working days from the date established for submitting the declaration, it is not submitted at all (clause 1, clause 3, article 76 of the Tax Code of the Russian Federation)
For late payment of tax	Penalties will be charged for each day of delay in the amount of 1/300 of the refinancing rate of the Central Bank of the Russian Federation in effect during the period of delay (Article 75 of the Tax Code of the Russian Federation). You can check whether the tax authorities calculated the amount of penalties correctly using our Calculator.