Cash basis regime: the VAT waits for payment, and so does the deduction
It sounds like a solution for anyone who gets paid late, and sometimes it is. But it has three trade-offs to know about before opting in, and one of them affects your clients.
The special regime that delays the chargeable event for VAT until payment is received, and the deduction of input VAT until payment is made.
Articles 163 decies and following of the VAT Act govern it, in force since 2014. It is voluntary and you opt for it on the census declaration, in December of the previous year.
Requirements
- Turnover for the previous year not exceeding €2,000,000.
- You are excluded if cash payments received from a single customer go over €100,000 a year (article 61 nonies of the VAT Regulations).
The three trade-offs
- You do not deduct until you pay, either. The VAT on your purchases waits for payment just as the VAT on your sales waits to be paid.
- There is a longstop date. If the invoice has not been paid, the tax becomes chargeable anyway on 31 December of the year immediately after the one in which the transaction took place.
- It spreads to your clients. Anyone receiving an invoice from someone on the regime cannot deduct that VAT until they pay it, even if they are not on the regime themselves. Some clients do not like that.
Invoices carry the compulsory wording «régimen especial del criterio de caja», and the dates and means of payment received and made have to be entered in the books.
An example with numbers
An invoice for €10,000 plus €2,100 of VAT issued in September and paid on 20 February the following year. Under the general regime, that €2,100 is paid over in October; on the cash basis, in April of the following year. Six months of difference in a small business's cash is not a detail.
The mistake that comes up most
Opting in while thinking only about sales. If you buy a lot and pay in cash but are paid at 90 days, the regime helps you; if you work with suppliers you pay late, it takes deductions away from you exactly when you need them most.
Where this carries on in Cairos: Payments, due dates and cash flow forecasting.
Terms that go with this one
Almost no tax concept makes sense on its own. These three are the ones that most often turn up beside it.
Devengo (the chargeable event)
The moment a transaction is treated as having taken place and the tax obligation arises, regardless of when it is paid for.
VATVAT accrued (IVA devengado)
The VAT generated by the period's transactions, regardless of whether the client has paid or not.
Payments and bankingDue date
The date on which the amount of an invoice becomes payable and from which it starts to generate interest for late payment.
This, handled without thinking about it
Cairos keeps the invoices, the record books and Hacienda's forms from the same data, so the theory on this page turns into boxes that are already filled in.
No card and no minimum term.