VAT is far and away the largest source of mistakes and glitches in our bookkeeping. I have to scrub the VAT return every month, and at the end of the year I still had maybe 30 remaining mistakes. Please, everyone BE CAREFUL. There are only two rules:
- You only apply VAT on purchases if we purchased from a business with an Estonian VAT number. In all other cases, we cannot claim VAT. When reconciling the transaction, please always set the VAT to 0% in FreeAgent. If you buy something anywhere but Estonia, you need to tell the vendor that you are an Estonian company, provide them with the VAT number and they should not charge you. If they do, we lose the VAT: to all extents, we are paying 21% more on our purchases. When buying online properly (i.e. requesting an invoice), the vendors know this and do not charge VAT. This happened already to us with CoolBlue, for example. E-commerce is easier than going down to the shop for us.
You never apply VAT on banking charges, even if our bank is itself Estonian. When reconciling banking charges, set VAT to 0%.
I have been in touch with FreeAgent support, and found a workaround to change the default rate to 0%. It should be much easier from now on. But the workaround will only work from June 26th on, so we still need to pay attention.