IRPF Deductions on Purchases

Anglo-Spanish Chartered Accountants

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IRPF on Purchases

IRPF on Purchases

When we make a purchase that is subject to withholding tax (IRPF), we deduct withholding tax from the price agreed with our supplier. This tax is an income tax payment on account for the profits of our supplier. By making this deduction we are merely acting as tax collectors on behalf of the tax office, hence we pay that money at the end of the quarter. An example would look as follows:

 

Purchase invoice - Rent      
  Invoice Our money VAT - Tax office money IRPF - Tax office money
 
Rent 1,000 -1,000    
VAT @ 16% 160   -160  
IRPF @ 18% -180     180
980 -1,000 -160 180

 

Our profit is only affected by the actual cost of the rent:

 

Profit and loss account
 
Sales 3,000

Expenses -1,200
Profit / (Loss) 1,800

 

However, the income tax withheld from our supplier becomes a creditor:

 

Balance Sheet      
  Profit Bank VAT Creditor IRPF Creditor
 
Sales 3,000 3,480 480  
Expenses -200 -232 -32 0
Rent -1,000 -980 -160 180
  1,800 2,268 288 180
 
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