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Accounting for VAT on a cash received basis

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Accounting for VAT on a cash received basis

VAT registered traders can opt to account for VAT by using one of two methods: invoice basis or cash received basis (also known as money received basis or VAT cash accounting).

This article discusses the use of the cash received basis and how it works.

Cash received basis background

If your business has a turnover of less than €2 million in any continuous period of 12 months then you can opt for the cash received basis. Any business with a turnover of greater than €2 million must register for the invoice basis method of accounting.

Also, if you provide the majority of services or goods (at least 90%) to customers not registered for VAT, you can opt for the cash received basis. This applies mainly to retailers, hairdressers, beauticians, restaurants and other similar types of businesses.

How the cash received basis works

Under the cash received basis a trader issues an invoice to a customer in the usual way. When payment is received for this invoice the VAT is accounted for on the traders VAT return.

For example, Business X issues an invoice on 12 June for €1,000 plus VAT of €230. On 12 August, Business X receives payment in full for this invoice. Business X will account for VAT in the amount of €230 on their July/August VAT return.

If a discount or reduction in price is allowed subsequent to the issue of the invoice then the trader must issue a credit note to a VAT registered customer showing VAT.

This will have no effect on the liability of the trader as the VAT will be accounted for on the amount received rather than the original invoice.

The effect of the credit note is to reduce the VAT deduction allowed to the customer.

Read more about VAT


How to opt for the cash received basis method

If you are registering for VAT for the first time, follow the instructions on the Revenue website to indicate your preference.

If you already registered for VAT you will need to contact your local tax office with details of your name, registered number, the percentage of turnover from taxable supplies to unregistered persons and level of annual turnover.

Once this method of accounting for VAT is selected, it cannot be changed unless approval from Revenue is granted. The effective date is usually from the start of the period during which it is given.

Transactions between connected persons are excluded from this basis of accounting for VAT and must use the invoice/sales basis.

If your business will exceed the turnover limit of €2 million in any continuous period of 12 months then you must contact Revenue to have this authorisation cancelled.

If your business was registered for this method based on the level of supplies to unregistered persons then the authorisation should be cancelled if in any four consecutive months the turnover from taxable supplies to unregistered persons is less that 90% of total turnover.

Editor’s note: This post was originally published in August 2013 and has been updated for accuracy and relevance.

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Comments (2)

  • We have recently changed over our business from Vat on Invoices to Vat on receipts. From our
    original Vat on invoice basis, we have customers that still have not paid some invoices that were done when we were paying vat on Invoice basis. We are still receiving payments against these invoices. As we do not want to have to pay Vat twice on these payments we have to manually note the payments we receive from invoice basis and deduct from overall receipts. Do we have to continue to note these payments separately on Vat return until they are all cleared.
    Also do I have to wait till these are all clear to transfer our vat basis to receipts from invoices.

    • Hi Marion,

      On the Standard VAT scheme, you pay and reclaim VAT on invoices and credits. However, when you change to CAT Cash Accounting, VAT calculates on monies received or paid.

      You should carry out the following procedures detailed in this guide http://1sa.ge/FvEN50BBfai to prepare your data before processing on the VAT Cash Accounting scheme, before entering any transactions under the VAT Cash Accounting scheme.

      Regards,

      Paul
      Sage UKI