Cash receipts vs. invoice basis of accounting for VAT

VAT_shutterstock_267248126There are two methods available for traders to account for VAT to the Revenue Commissioners:

1. Invoice Basis The invoice basis requires traders to account for VAT on invoices issued in the VAT period in question. This scheme can be disadvantageous from a cash flow point of view as traders must pay VAT to the Revenue Commissioners before they have received payment from customers.

2. Cash receipts basis  The cash receipts basis, also known as the monies received basis, allows traders to account for VAT on cash actually received by them in the VAT period in question.

This cash receipts is can be availed of if:

  • annual turnover is less than €2,000,000 or
  • 90% of the trader’s annual turnover comes from the supply of goods or services to those who are not required to register for VAT (the general public etc.)

The VAT rate applied is the VAT rate in force at the time of the supply and not when payment has been received. This can be disadvantageous for the trader if the VAT rate increases in the meantime.

Under both the invoice and cash-receipts basis, a trader is entitled to reclaim the VAT on invoices received from suppliers during the period in question, whether or not the trader has paid the invoice.

If you require any advice on any of the points raised above, please contact our Tax Department.