Taking up an activity that does not affect your business success sounds astonishing at first. Nevertheless, there are numerous situations in everyday life that require you to act in exactly this way. In this article you will find out when a business activity is a so-called transitory item and what you need to consider.
What is a transitory post?
The sales tax law term of the transitory item is often found in corporate bookkeeping . As an entrepreneur, you do not work in your own name, but as a trustee you guarantee the smooth running of business on behalf of independent parties.
How can you identify items in transit?
A clear characteristic of a transitory item is when you work with your company on behalf of third parties . In this context, it is irrelevant whether these amounts are disbursed costs or income . It is important that you pass on the same amounts to third parties that accrue to your company, without these being related to your actual business purpose.
Requirements for continuous
In order for a transitory item specified by you to be recognized as such by the tax office, you must meet certain conditions. It is crucial that the activity mentioned does not take place in your own name but on behalf of a third party. You are neither a debtor nor a creditor in terms of transitory items .
Furthermore, the following information is essential:
- Name and address of the authorized person
- Amount of the relevant amount
- Date of incoming and outgoing money
- Purpose of the transit item
Invoicing without a claim against companies
As an intermediary, you as an entrepreneur in the function of a paying agent collect and spend amounts of various kinds. According to the law, you may not be entitled to the respective amount vis-à-vis the service provider or be subject to any obligation to pay the recipient. For the assertion of a transit item, a direct legal relationship between the payee and the person obliged to pay is fundamental. Invoices are issued to someone else’s name and address; you yourself take the place of a trustee. The economic point of view is not decisive here.
What should be considered with operating income?
Since a transitory item is characterized by the fact that it does not affect the actual purpose of your company, it is neither operating income nor operating expenses . This means that your operating income is basically unaffected by items passing through. The legal basis for this can be found in Section 4, Paragraph 3, Sentence 2 of the Income Tax Act .
Relationship between client and transitory items
In order to save you unpleasant queries from the tax office regarding your transitory items, you should know your client exactly. The complete and correct proof of the names and addresses for which you work towards third parties is required in any case . If your information is incomplete or in the eyes of the tax office doubtful, it is not possible to claim it as a transitory item. In addition, you can no longer consider the relevant bills as business expenses, but are charged to your income.
What can you not call transitory posts?
These examples do not meet the requirements for a transitory item:
- Packaging costs that are made in your name and passed on to third parties in the form of a charge
- Telephone and other communications charges
- Traveling expenses
Relationship between taxes and transitory items
With the proof of a transit item, you do not have to pass sales tax on to the tax office. The sales tax is transferred in full to third parties as a transitory item. In detail, the handling of transitory items can be found in the Value Added Tax Act .
What does not include fees that are subject to VAT?
The amounts of your company’s transitory items do not count towards taxable considerations . The reason for this is that these do not affect your wealth. According to the Ustg, a transitory item does not take into account sales tax or input tax . All amounts must be verifiable in detail to the tax office at any time. This includes a clear record of each process including information about when and for what purpose the collection took place. In addition, the time must be specified.
Are fees subject to sales tax?
The sales tax on fees does not apply, for example, when the costs incurred by notaries are passed on to their clients. These provisions are defined in Section 10, Paragraph 1, Sentence 6 of the Ustg (Value Added Tax Act).
Recording of transitory items in the bookkeeping
Although transitory items are not related to your actual business purpose, you are still obliged to book these transitory items in your bookkeeping .
So that a clear distinction to your core business is possible at any time, these must always be recorded in a separate clearing account with the designation “transitory items”. Every single item running through must be recorded in the accounts.
How are transitory items posted in the balance sheet for the tax office?
All items running through initially influence the liquidity of your company in some way . Cash payments relating to the account Checkout , remittances are contrast to the account bank recorded. Transit items with outstanding amounts of money are to be entered in the accounts receivable. In all cases, the contra account with the designation “transitory items” is used. If the posting is correct and complete, the amounts cancel each other out on balance. The clear allocation of all transitory items is of enormous importance for the tax office and for tax audits.
What about business expenses or business withdrawals?
Business expenses are not part of the transitory items, as you are acting in your own name and for the account of your company. In the case of withdrawals from operations , however, the intended use is decisive. As a rule, you will also make withdrawals from operations in the interests of your company, so that the requirements for a transitory post are not met here either.
What are the consequences of determining the profit?
Transit items always have a neutral effect on a company, so that they are not taken into account when determining profits.
Where can you find the current items on the balance sheet?
Since the amounts transitory item basically cancel in full, are within the scope of this accounting treatment both on the asset side of the balance sheet to activate and passivate across the liabilities side.
In addition, it often happens that transitory items have not yet been processed in full by the balance sheet date . In such a case, they are allocated in the balance sheet to the category of other assets or, alternatively, to the other liabilities of your company.
As an entrepreneur, you are exempt from this requirement if you are obliged to create an income-surplus invoice (EÜR) , which you can easily create using an EÜR template . Since the income-surplus-calculation only serves to determine the profit, transitory items are always disregarded here. It is irrelevant whether the items in transit relate to amounts of money or assets.
Frequently asked questions on the subject of “transitory items”
Why is the UST a transitory item?
For you as an entrepreneur, purchases and sales are an integral part of your day-to-day business in a wide variety of ways. In this context, you will inevitably be confronted with sales tax , which your company pays for sales with an additional 19% on the value of the goods . In the case of business expenses , sales tax also accrues to your company as so-called input tax with 19% .
The amount that you receive as sales tax from your customers is to reduce the input tax you have already paid and then to be paid monthly to the tax office. Since you are obliged to pass the entire sales tax on to the tax office, this affects the liquidity of your company, but not your success. Only the cash register, bank and receivables accounts are affected by sales tax, while sales remain neutral.
So that the allocation of the sales tax is clearly possible, you must show it separately on the input tax and sales tax accounts. Since the sales tax runs through the group of accounts in full, it is also known colloquially as a transitory item. The business of your company is completely unaffected by sales tax , while the end user ultimately pays the full amount .
What is pass-through item?
All business transactions that do not affect the bottom line of your company are referred to as “pass-through items” . You are neither obliged to pay nor do you receive it. You only take over the transfer of a sum of money between two contracting parties.
When input tax and when VAT?
VAT and tax are colloquially often referred to as value added tax referred. The tax itself is in no use tax law, however sporadically on receipts to meet and bills. Although the tax rates are identical in each case, the distinction between input tax and sales tax is of crucial importance in your day-to-day business:
|Input tax||Value added tax|
|Tax that you pay as an entrepreneur when purchasing goods and services||Tax by which you as an entrepreneur increase the value of your goods in sales|
|You will receive back the full amount of input tax you have paid from the tax office after you have previously registered for VAT||the entire tax amount is to be paid to the tax office after the advance VAT return|
|Use with expenses||Use on receipts|
|Posting to input tax account||Posting to sales tax account|
Strictly speaking, input tax and sales tax embody one and the same tax, it just depends on the perspective.
Even if the so-called transitory items are not part of the core business of your company, they still play a decisive role in your day-to-day business. The best-known practical examples are notarial fees and social security contributions for employed workers. Regardless of the type of item passing through, the completeness and correctness of your information is decisive so that the tax office does not grant you any disadvantages.