Collection costs and VAT: what you need to know

When you charge collection costs to a debtor, the question quickly arises: do you have to charge VAT on them? And if so, can you pass that VAT on? The answer depends on your situation. In this article we explain the rules and provide a concrete calculation example.

Collection costs are a form of damages. The tax authorities generally do not consider damages as payment for a service. This means that in most cases you do not have to charge VAT on collection costs that you charge to your debtor yourself.

This is different when you engage a collection agency. The collection agency provides a service to you (the creditor) and charges VAT on it. You pay this VAT to the collection agency and can (if you are VAT-liable) deduct it as input tax.

In summary:

• Self-collecting: no VAT on the collection costs you pass on to the debtor.
• Collection agency collects for you: the agency charges VAT to you for their service. You can deduct this VAT as input tax.

Whether you can pass on VAT to your debtor depends on the situation:

• Self-collecting: you do not charge VAT on the collection costs. The BIK scale is inclusive of any VAT. You may therefore pass on the amount from the scale without adding VAT on top.
• Via a collection agency: if you are not VAT-liable (for example as a healthcare provider or in education), you cannot deduct the VAT that the collection agency charges you. In that case you may pass on the VAT component as additional damages to the debtor, on top of the collection costs from the BIK scale.

This distinction is important: if you are VAT-liable and can deduct the VAT, you may not also pass it on to the debtor. That would result in a double benefit.

Below are two situations with an outstanding invoice of € 1,500.00:

The difference is therefore € 47.25. For entrepreneurs who collect debts themselves and are VAT-liable, it is straightforward: no VAT on the collection costs. Also read when you may charge collection costs. Use our collection costs calculator to calculate the exact amount for your situation.

Certain professions are exempt from VAT, such as medical professions, education and certain cultural institutions. If you are VAT-exempt and engage a collection agency, you cannot deduct the VAT the agency charges you as input tax.

In that case you may pass on the VAT component as additional damages to the debtor. The Supreme Court has confirmed that this is reasonable, because the VAT constitutes an actual cost for you. You must, however, clearly specify this in your claim.

It is important that you state the collection costs correctly in your WIK letter. The law requires that you state the exact amount of collection costs that will become due upon non-timely payment. This amount must correspond to the BIK scale.

If you are VAT-exempt and wish to pass on the VAT, include this as a separate amount in your claim (not in the WIK letter itself). The WIK letter states the amount in accordance with the BIK scale; you claim the additional VAT damages at a later stage.

Tip: never state a higher amount of collection costs in the WIK letter than the BIK scale allows. This may cause the entire claim for collection costs to be rejected, even if the excess amount was merely the VAT component.

In most cases you do not charge VAT on collection costs when you collect debts yourself. Only if you are VAT-exempt and engage a collection agency may you pass on the non-deductible VAT as additional damages. In addition to collection costs, you can also claim statutory interest. Always state the amount in accordance with the BIK scale in your WIK letter, without a VAT surcharge. Via wikbriefversturen.nl the correct amount is automatically calculated and included in your WIK letter.