You buy a passenger car: the VAT appears on the invoice, but it gives no right to deduct. That VAT does not evaporate and does not go into a losses account: it joins the cost of the asset or expense concerned, and then follows the fate of that cost. Knowing which expenses are excluded is one question; knowing where to put the tax is another, and it is the second that distorts the accounts most often.
The essentials in five points
- Non-deductible VAT is part of the cost. It has no account of its own; it joins the expense or the fixed asset.
- On a fixed asset it enters the depreciable base and is therefore deducted, but spread over the useful life.
- On an expense the entry is made VAT-inclusive, with no recoverable VAT line at all.
- Under partial deduction, only the non-deductible fraction joins the cost; the rest stays recoverable.
- The list of exclusions is a separate question, covered elsewhere and to be checked before the entry.
1. The principle: non-deductible tax is cost
Deductible VAT is not an expense because you recover it. As soon as recovery is impossible, that reasoning collapses: the money has left the business for good and is therefore part of what the asset or service cost.
| Type of spend | Entry | Consequence |
|---|---|---|
| Expense with deductible VAT | Expense net + recoverable VAT | The result bears the net amount |
| Expense with non-deductible VAT | Expense at the VAT-inclusive amount | The result bears the gross amount |
| Fixed asset, deductible VAT | Asset net + recoverable VAT | Depreciable base excludes VAT |
| Fixed asset, non-deductible VAT | Asset at the VAT-inclusive amount | Higher depreciable base |
The fourth line is the one most often forgotten. Non-deductible VAT on a fixed asset is not lost: it is depreciated with the asset. It is therefore deducted from the result, but across several years instead of being recovered immediately, which is a cash-flow lag rather than an outright loss.
2. What not to do
Three treatments come up regularly and all three are wrong, for different reasons.
- Creating a “non-recoverable VAT” account: Isolating the tax in a dedicated expense account detaches the cost from its object. The fixed asset then appears understated on the balance sheet and the year’s expense overstated, when the tax should have been depreciated.
- Deducting anyway and adjusting later: The deduction is refused by nature, not deferred. A later adjustment does not repair a deduction that never carried any right.
- Recording the spend net and forgetting the tax: The cost is then understated and the entry only balances at the price of an adjustment somewhere. It is the silent version of the same error.
The thread is simple: non-deductible VAT always follows the object of the spend. It deserves neither a special account nor separate treatment, and that is precisely what makes it easy to handle once the principle is accepted.
3. The partial deduction case
A business carrying out both operations that give a right to deduct and operations that do not cannot deduct all of its input VAT. The non-deductible fraction then follows the same rule.
- Determine the deductible fraction applicable to the spend concerned.
- Record the deductible fraction as recoverable VAT, as usual.
- Add the non-deductible fraction to the cost of the expense or fixed asset.
- On a fixed asset, that fraction increases the depreciable base accordingly.
- Document the calculation of the fraction, which will be asked for on inspection.
- Check the revision and adjustment conditions with your accountant.
The mechanics of the deduction ratio and its revision conditions come from the tax code and are assessed with your accountant. What is constant, whatever fraction applies, is the accounting destination of the non-deductible part: cost, never a tax account.
Do not create a lost-VAT account
This is the most common reflex and it distorts the accounts lastingly. Isolating non-deductible VAT in a separate expense account understates the asset’s entry cost, therefore the depreciable base, therefore every future year’s charge, and at the same time distorts the net book value used on the day of a disposal. One misdirected entry propagates across the asset’s entire life.
4. Check before you post, not after
The accounting treatment is simple, but it assumes you know whether the deduction is available. That is the question to settle first.
- Check that the spend genuinely serves a taxable operation of the business.
- Run through the exclusions from the right to deduct, set out in the recoverable VAT guide.
- Check the invoice is compliant: with no proper document, no deduction.
- Decide whether this is an expense or an asset, because it changes what follows.
- Only then post: net plus recoverable VAT, or VAT-inclusive.
Reversing that order is what produces year-end corrections. Once the entry is posted net with VAT wrongly deducted, the error touches the VAT return, the result, and — for a fixed asset — the whole depreciation schedule.
Mistakes to avoid
- Isolating non-deductible VAT in a dedicated expense account.
- Excluding non-deductible VAT from an asset’s depreciable base.
- Deducting excluded VAT intending to adjust later.
- Recording the spend net without dealing with the tax.
- Adding all the VAT to cost when a fraction was deductible.
- Not documenting the calculation of the deductible fraction.
Frequently asked questions
Where does VAT you cannot deduct go?
Into the cost of the spend. On an expense, it is recorded VAT-inclusive; on a fixed asset, the tax enters the entry cost and therefore the depreciable base.
Is that VAT lost for good?
No, it is deducted from the result, but differently. On an expense, immediately, since the expense is booked gross. On a fixed asset, spread through depreciation. The real loss is cash and timing, not deduction.
Is a specific account needed for non-deductible VAT?
No, and this is the most frequent error. The tax follows the object of the spend. A dedicated account detaches the cost from its asset and distorts both depreciation and net book value.
How is partial deduction handled?
The deductible fraction is recorded normally as recoverable VAT; the non-deductible fraction joins the cost. The calculation of the fraction and its revision conditions are settled with your accountant.
Does BelloPOS know whether VAT is deductible?
No, and no till software knows that for you. BelloPOS records the spend and its document; deciding deductibility is a tax judgement taken before entry, with your accountant.
What to take away
Remember one rule and one only: non-deductible VAT follows the object of the spend. An expense recorded gross, a fixed asset carried gross and depreciated on that basis. No lost-tax account, no separate line. The difficulty is not in the entry, it is in the question that precedes it: is the deduction available?
Sources
The figures and rules quoted above come from these pages, read on the date given in the article.
- Moroccan Tax Administration, 2026 General Tax Code
- Ministry of Economy and Finance, General Code of Accounting Standardisation, read 1 September 2026
Your spending and its documents, kept together
BelloPOS records expenses and their supporting documents from Go onward, and accounting journals with Pro. The tax characterisation is decided with your accountant, on the documents.
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