Annual VAT return
Where the year's settlements are summarised.
OpenBusinesses · Periodic obligations
Periodic VAT settlements and the LIPE
Every month or every quarter you set the VAT you charged against the VAT you paid, pay the difference and send a summary to the Agenzia delle Entrate (the Italian Revenue Agency). It is a repetitive task, but it is the one that generates the most avvisi bonari (informal tax notices) when something does not add up.
01 · The mechanism
What a periodic VAT settlement is
The periodic settlement is an arithmetical operation: you take the output VAT on the sales of the period, subtract the input VAT on the purchases recorded, and arrive at the balance.
If the balance is payable, you pay it by the deadline for the period. If it is a credit, the credit is carried forward to the next period, where it is added into the calculation. There is nothing discretionary about it: the result depends entirely on what has been recorded.
This is why the quality of the settlement depends on the quality of the bookkeeping. A purchase invoice that arrives late, or is recorded in the wrong period, shifts the balance and produces an incorrect payment.
The settlement is based on what was recorded in the period, not on what was collected or paid. This is the difference between the VAT accruals basis and the cash basis, and confusing the two is the most common mistake among people coming from the flat-rate scheme.
02 · The choice
Monthly or quarterly VAT settlement
How often you settle depends on your turnover in the previous year. Below a certain threshold you can opt for quarterly settlement; above it, monthly settlement is compulsory.
| Aspect | Monthly | Quarterly |
|---|---|---|
| Who uses it | Compulsory above the turnover threshold | By choice, below the threshold |
| Deadlines | Sixteen payments and summaries a year | Four periods, with the last one flowing into the annual return |
| Interest | No surcharge | A percentage surcharge on the amount payable |
| Cash flow | More frequent, smaller payments | Less frequent, larger payments |
| VAT credits | Absorbed more quickly | Stay tied up for longer |
Quarterly settlement costs a surcharge but frees up cash during the year. For businesses whose clients pay slowly it often still makes sense, because it avoids paying VAT in advance on invoices not yet collected.
03 · The LIPE
The LIPE: communicating settlement data
As well as the payment, there is an obligation to communicate online: the LIPE (Comunicazione delle liquidazioni periodiche IVA, the periodic VAT settlement return) summarises the settlement data for the quarter and must be sent even if the balance is zero or a credit.
- It is sent every quarter, whether you settle monthly or quarterly.
- It must be sent even with a zero balance or a credit: having no tax to pay does not exempt you from the communication.
- It shows taxable amounts, output and input VAT, and the result for each period in the quarter.
- The last quarter flows into the annual VAT return when this is filed within the set deadline.
- Failing to send it, or sending it late, carries a separate penalty, distinct from the one for non-payment.
Why the notices arrive
The Agency compares the LIPE with payments and with electronic invoices.
- A LIPE declaring an amount due with no matching F24: an almost automatic notice
- Electronic invoices transmitted but not reflected in the settlements
- A credit carried forward that does not match the one from the previous period
- A missing communication for a quarter: the gap is visible straight away
04 · The calendar
The deadlines to keep
The calendar is fixed and repetitive. It is worth setting it up once and not thinking about it again.
- Monthly payment: by the 16th of the month after the reference period.
- Quarterly payment: by the 16th of the second month after the end of the quarter, with the set surcharge.
- LIPE communication: by the last day of the second month after the end of each quarter, with specific deadlines for the second and fourth quarters.
- VAT advance payment: in December, worked out with one of the permitted methods.
- Annual VAT return: in the window during the first months of the following year.
Deadlines falling on a Saturday or a public holiday move to the next working day. The summer period also has a suspension of payment deadlines, which is confirmed each year.
05 · Remedies
A missed payment or an incorrect communication
Neither mistake is beyond repair, but the remedies are different and must be used before any formal challenge arrives.
Missed payment
You put it right with ravvedimento operoso (voluntary correction): a penalty reduced according to the delay, plus interest calculated day by day.
Insufficient payment
The same mechanism, applied only to the difference not paid.
LIPE not sent
You send it late, with a reduced fixed penalty if it goes out within a short time after the deadline.
Incorrect LIPE
You send a replacement communication for the same period, which cancels and replaces the previous one.
The practical rule is just one: act before the Agency's communication arrives. After a formal challenge the reductions for voluntary correction are no longer available, and the full penalty is much higher.
06 · When VAT is in credit
What to do with a VAT credit
A VAT credit that builds up without being used is cash standing still. There are three routes, with different requirements.
- Carrying it forward to the next period: the automatic route, with no formalities.
- Offsetting it in the F24 (the Italian tax payment form) against other taxes and contributions, within the annual limits and with the visto di conformità (the compliance certification on the return) above a certain threshold.
- A refund, annual or quarterly, when the conditions set by law are met: average rate, non-taxable transactions, purchase of depreciable assets, and the other cases listed.
- Horizontal offsetting (against other taxes) requires the Agency's online channels: home banking is not allowed in these cases.
Frequently asked
The questions that keep coming up
Do I have to send the LIPE even if I made no transactions?
If there is no data to communicate for the whole quarter, the communication may not be due. If, however, there is even just a credit carried forward from the previous period, it must be sent.
When in doubt, send it: one communication too many has no consequences, one too few does.
Can I switch from monthly to quarterly?
Yes, if your turnover in the previous year stays below the set threshold. The option is exercised through conduct, that is by actually settling quarterly, and is reported in the annual VAT return.
The switch is weighed up mainly in terms of cash flow: the surcharge has a cost, but paying VAT in advance on invoices not yet collected costs more.
I recorded a purchase invoice in the wrong quarter. What do I do?
It depends on when the invoice was received and when the tax became chargeable. The right to deduct input VAT has precise rules on the period in which it can be exercised.
If the mistake produced an incorrect settlement, both the settlement and the communication are corrected, and any difference is regularised with voluntary correction.
How is the December VAT advance payment worked out?
Several methods are allowed: the historical method, the forecast method and the one based on transactions carried out up to a certain date in December.
The method you choose affects the amount and the risk: the forecast method is the most convenient when business is slowing down, but if the estimate turns out too low the penalty applies to the difference.
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