The main benefit is that if you send out an invoice and the customer doesn’t pay you, then you don’t have to pay the VAT on that sale until it’s settled. That’s good news for your bank balance! It’s also more streamlined, easier to manage, and harder to get wrong. The main benefit of cash accounting is that you don’t have to pay your VAT until your business has been paid. The benefits of cash receipts basis accounting That’s why it’s always best to discuss your options with your accountant while you’re working on setting your business up. It’s a complex area to work through, and the wrong decision about which basis of accounting to use can have long-lasting effects. Have a customer base that is predominantly not registered for VATīusinesses that meet these criteria will still have to provide a VAT invoice for any VAT registered customers.Have an annual turnover lower than €2,000,000.However, not every business is eligible for cash receipts basis accounting. So even if you haven’t received the payment stipulated by the invoice, your VAT obligations are immediate.īusinesses that use the cash receipts basis of accounting (also known as the money received basis of accounting) will only become liable for their VAT payments when their customers have paid them. Your liability to pay VAT will depend a lot on whether you use cash or invoice accounting, so it’s something that you need to ensure is right.įor those businesses using invoice basis accounting, once you have created and sent an invoice, you need to pay your VAT when submitting your next VAT return. Paying VAT with a different accounting basisĪll businesses collect VAT for Revenue, and when your company sells goods or services, you are required to add VAT to the price charged to the customer and remit that to Revenue. As you might imagine, cash accounting can make cash flow management much easier because you won’t need to pay Revenue until you have received payment from your customers. Invoice accounting basis, which is sometimes referred to as either accrual accounting or standard accounting, is when you are obligated to pay your VAT when you create an invoice (known as raising an invoice).Ĭash receipts basis accounting is when you are only required to pay your VAT obligations to Revenue when your customers have paid you. Invoice accounting basis vs cash receipts basis accounting These are:īefore you decide which one is best for you, you need to understand the differences between them and learn which would give your specific business the most advantages. If your business is registered for VAT, you have two accounting schemes to choose from. The ultimate liability to pay it eventually falls to the final consumer of goods & services. VAT, if you didn’t already know, is a tax that is imposed at each stage of the production, distribution or business cycle. In fact, it’s so important that we wrote a guide on the subject here. Value-added tax ( VAT) is something that most businesses are accustomed to. It’s all about your tax responsibilities, which are critical to get right if your business is to continue trading. Understanding the difference between invoice and cash receipts basis accounting is a crucial accounting principle that business owners must understand.
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