From the machine room of TDF: Reviewing monthly accounting

Now that the December accounting ledgers have been prepared by the accountant, I will share with you which tasks TDF usually needs to do to finalize its monthly accounting.

While things are handled by the team, the ultimate responsibility is with TDF’s board. See also our statutes, which in § 8 II say that the board’s (emphasis by me) main tasks are: management of the foundation’s assets, use of the foundation’s resources, preparation of a budget plan, proper accounting and collection of documents, and preparation of the annual financial statement and activity report.”

Deadlines

There are several things which are deadline-bound:

  • The VAT filing with a deadline by the 10th of the month after next, i.e. the December VAT needs to be filed by February 10.
  • The usual deadline is the 10th of the following month (so December VAT by January 10). To be eligible for a permanent extension of this deadline, which TDF has been granted, we need to be a reliable taxpayer, meet all deadlines, and make the 1/11 special advance payment with a deadline of February 10.
  • Every quarter, we need to do a VAT summary report for our sales (mostly that’s the app stores) with a deadline by the 25th day after the end of each quarter.
  • The federal bank AWS Z4 filings with a deadline of the 10th after the end of the month, which fortunately now is only required for payments over 50.000 €, relaxing the situation for us quite a lot. Should we need to make a filing, we not only need to identify the involved countries, but also correctly identify the kind of service delivered, which can be a challenge by itself.

There are other deadlines which rely on the monthly accounting, e.g. the artist social security filing by March 31, and of course the annual tax and VAT declarations and the four-year social security audit.

Review of the ledgers

We receive the ledgers with line items in PDF format. Our expenses and projects are in general ledger accounts, and we do a quick review if the items have been assigned correctly (e.g. whether an event falls into the “marketing” or “community”) budget. The document also contains depreciation, e.g. for hardware.

We usually don’t review the full ledger, because every individual donation is represented there, making it hundreds, if not thousands of pages. As explained before, we sometimes have about 45.000 transactions per month.

There’s usually no correction necessary in those ledgers, as the accountant knows our projects, and if in doubt, clarifies things with us beforehand. Recurring payments are automatically assigned to the correct account.

For some statistics, the December ledgers to review have 95 pages.

Over the course of this, the accountant every so often discovers unwarranted withdrawals, which in the past, we had to book back via a phone call to the bank, but in the meantime can do it conveniently online, which saves a lot of time.

Also, reviewing the ledgers means correctly assigning income and expenses to our nonprofit part and our business part (mostly advisory board fees, merchandise sales and app store sales). This will also be relevant for the VAT filing (see below).

Translations of the ledgers

After this step is done, the German ledgers are translated to English, to be published on our wiki. This is a partially manual process - the translation strings are applied automatically, but some line items need to be redacted (or rather combined) for confidentiality reasons, in particular salaries and compensations, as well as specific legal topics.

What are VAT and reverse charge?

With this, the accounting is not done, as the next step is to review the monthly VAT filings. VAT can turn into an expensive problem, and our sales in the app stores just lately triggered another VAT audit, which we’ve successfully passed.

For its nonprofit area, which covers most of our activities, TDF has to pay VAT, but cannot recover it. For our business part, which is mostly advisory board fees, merchandise sales and app store sales, we can recover VAT, like any regular business. We are, however, not allowed to cross-finance our business part with income from our nonprofit part, as the latter money is tax-exempt or tax-privileged.

For invoices from Germany, usually the issuer of the invoice adds the VAT (which is normally 19% in Germany), TDF pays the entire sum, and the issuer of the invoice pays the money to their tax office. For business with foreign countries, or more precise, someone not using a German VAT ID, a principle called VAT reverse charge applies. TDF receives a net invoice, and has to pay the respective VAT inside Germany and do this calculation ourselves. Unfortunately, there are quite a few exceptions, e.g.:

  • bank services are usually not subject to VAT, but payment processors are
  • banking fees when paying out of the Euro zone are not subject to VAT, the invoice amount without the fees may
  • membership fees are usually not subject to reverse charge
  • restaurants, hotels, events and other “real-estate bound” services are usually not subject to VAT reverse charge
  • travel refunds to community volunteers are usually not subject to VAT

Also contractual partners who are small businesses and/or are not in posession of a VAT number might deliver services subject to VAT reverse charge.

Note: The above list is non-conclusive and no legal statement nor legal advice. Things happen to change quickly here, and regulations might differ per country. Always ask your tax consultant for the applicable regulations.

Review of the VAT filing

Every month, the accountant prepares a spreadsheet with payments that are subject to VAT. In a first step, we verify this list by going through our bank accounts and credit card statements and via filters compare the transactions with the spreadsheet. There never was something missing, our accountant works very diligently, yet we should double check things are in order before TDF makes a filing.

In a second step, we need to evaluate where the invoice comes from, in particular, which VAT ID used. A company in Poland, Italy or France might still have and use their German VAT ID, in which case reverse charge likely not applies, as they are treated as invoicing from Germany. The invoice origin is also relevant for flagging the proper category. Technically, VAT reverse charge only seems to exist within the European Union. Foreign countries apply a similar principle, but it is called differently, and has to be filed in a different category.

In a third step, we need to remove any banking fees from the paid amount. These are usually listed in the transaction line. Usually, only the sum without the fees is subject to VAT. The difference per transaction can be from a few cents (US dollars on a credit card) up to 40 € (bank transfer to a non-Euro country). Fees, by the way, usually are not significantly different between the various payment services, they are just merged in different ways, e.g. in currenty conversion or transaction fees.

Our credit card processor is a specific case, as they remove their fees, which are subject to VAT, from the monthly payments, so we need to identify the sum based on the invoice they send us each month.

Also the employment agency we use for employing in foreign countries needs some manual work, as not every employee is reflected in a single line item, but transactions are bundled and need to be identified according to the invoice we receive.

The December VAT filing which we are currently reviewing has 36 lines in five categories and a prelininary sum of approximately 10.000 €. Last but not least, with the December VAT filing, we can deduct the 1/11 special advance payment which we made earlier this year, effectively reducing the amount we have to pay now.

Good news at the end

If you made it until here, I’d like to reward you with some good news. The past year was likely the best ever at TDF in terms of donations. With the preliminary numbers, we made a total income of 1.967.680,88 €, compared to 1.391.189,00 € in 2024 and 1.302.956,10 € in 2023. November alone was approximately 200.000 €, December alone 300.000 € in donations.

Thanks a lot to all our donors and supporters!

You can find spanish translation at Desde la sala de máquinas de TDF: Revisión de la contabilidad mensual

Traditional Chinese translation is here:

tdf-accountingreview-zh_TW.pdf (374.4 KB)