Tax advice: VAT boost for SMEs even if company sales are higher
MOST businesses account for VAT on sales on the basis of the invoices issued during a VAT period.
This means that in many cases, VAT is payable to Revenue before the trader has received payment from its customer.
However, certain traders are entitled to account for VAT on sales calculated on the payments received in the VAT period.
This can assist cash flow for SME businesses.
Who can qualify to account for VAT on the cash received basis
In order to qualify for the cash received basis of accounting one of the following conditions must apply:
• The traders annual turnover must not exceed €2,000,000 (this threshold applies from 1 May 2014); or
• At least 90pc of the traders turnover must be derived from sales made to customers who are not registered for VAT, or to customers who are not entitled to claim a full deduction of VAT.
Any trader operating under the cash received basis of accounting for VAT should note the following:
• Once a trader has been authorised by Revenue to apply the cash received basis of accounting, the trader is liable to VAT on all moneys received after the date of authorisation;
• Construction services supplied by a sub-contractor to a principal contractor cannot avail of the cash received basis of accounting;
• The cash received basis of accounting does not apply to transactions between connected parties.
• Any trader on the operating the cash received basis of accounting is required to issue a VAT invoice when a customer is registered for VAT;
• In the event of a change in VAT rates, a trader operating on the cash received basis of accounting must apply the VAT rate by reference to the time that the goods or services were actually supplied, and not the time that the payment was received;
How to apply for the authorisation
Any VAT-registered trader who is eligible and wishes to account for VAT on the cash received basis should apply in writing to Revenue for the authorisation. The following details should be detailed in the request:
1. Name and address of the trader;
2. VAT registration number;
3. The nature of the person’s business activities;
4. The percentage of turnover from taxable supplies, if any, which related to supplies to unregistered persons for whichever of the following periods is the shorter:
The period of 12 months ended on the last day of the taxable period prior to the application, or
The period from the commencement of business activities to the last day of the taxable period prior to the application;
5. An estimate of the percentage of the turnover from taxable supplies to unregistered persons for the 12 months from the start of the taxable period during which the application is made;
6. Level of annual turnover, if under €2,000,000.
An unregistered trader can also opt to account for the cash received basis of accounting by ticking the relevant box on the VAT registration form (TR1 or TR2).
Caitriona Fitzpatrick is a tax specialist at Grant Thornton