Moneys Received Basis Of Accounting
This Information Leaflet sets out which VAT-registered traders may opt to account for VAT on the basis of moneys received from their customers instead of the normal method based on the issue of invoices to their customers, and how such traders may apply to operate this scheme.
2. Description of moneys received basis
VAT is normally accounted for on the invoice basis, i.e. VAT is payable on the total sales invoiced in the relevant period regardless of whether or not the trader has been paid for the supply in that period. However, certain traders can opt for the moneys received (cash) basis ofaccounting, under which the trader is not required to account for VAT until payment for the supply is actually received.
3. Traders who may opt for moneys received basis
The traders who may opt to account for VAT in this way are:
- VAT-registered traders whose supplies of goods or services are almost exclusively (at least 90%) made to unregistered persons. This would apply in practice mainly to retail outlets, public houses, restaurants, hairdressers and any similar type of business, or
- VAT-registered traders whose annual turnover(exclusive of VAT) does not exceed or is not likely to exceed €1,250,000 (with effect from 1st May 2013).
It should be noted that the use of this basis of accounting in no way removes from a VAT-registered trader his or her obligations as regards the issue of invoices and other documents, the maintenance of records, lodgment of returns etc.
The supply of goods and services to a person who is not entitled to full deduction of the VAT charged in respect of that supply may be treated as a supply to an unregistered person, for the purposes of determining whether a person qualifies to use the cash basis (i.e. for the purpose of the 90% rule).
Examples of such supplies are:
- the supply of a car;
- provision of accommodation or entertainment services;
- the supply of goods to an exempt body;
- the supply of goods to a person who is registered for VAT solely in respect of his intra-Community acquisitions or Fourth Schedule services provided that in each case the person in receipt of the supply is not entitled to a full deduction of the VAT charged.
4. Excluded transactions
Transactions between connected persons are excluded from the moneys received basis of accounting. VAT on any transactions between such persons must be paid by reference to the normal invoice/sales basis. VAT on property transactions must always be accounted for on the invoice basis.
5. Application and authorisation
A taxable person who wishes to account on the cash basis, should apply in writing for authorisation to his or her local Revenue District setting out the following details:
- name and address;
- VAT registration number, where appropriate;
- the nature of the person’s business activities;
- the percentage of turnover from taxable supplies, if any, which related to supplies
tounregistered 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;
- 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;
- level of annual turnover, if under €1,250,000.
An authorization to account for VAT on the cash basis has effect from the start of the period during which it is given, or from a subsequent date if so specified.
Persons who are applying for VAT registration for the first time, and find that they are eligible for this basis of accounting should indicate in the appropriate box on the application form (TR1 or TR2) whether or not they wish to use the moneys received basis.
6. VAT liability on moneys received
A trader who has opted to account on the moneys received basis is liable for VAT at the rate applicable at the time the goods or services are supplied and not at the rate applicable when payment is received, if a change in rate has taken place in the interim.
Moneys received by a VAT-registered trader include any sums:
- credited to the trader's account in a bank, building society or other financial concern,
- received by another person on the trader’s behalf, or
- paid to Revenue by a third party to the trader’s account in accordance with the Commissioners’ power of attachment,
- deducted as Professional Services Withholding Tax by an accountable person. See professional Services Withholding Tax below).
- deducted as Relevant Contract Tax deducted by a principal contractor or a sub-contractor. See Relevant Contract Tax below.
A VAT-registered trader is also deemed to have received money if liability in respect of a business transaction is settled by setting off against it a credit due in respect of some other transaction. Care must be taken when money is received through an agent that any amount withheld by the agent to cover fees, expenses etc., is included in the taxable amount.
7. Professional Services Withholding Tax
Income Tax withheld from payments for professional services is deemed, for VAT purposes, to have been part of the consideration received by the trader.
8. Relevant Contract Tax
Relevant Contract Tax deducted from payments for relevant contracts is deemed, for VAT purposes, to have been part of the consideration received by the sub-contractor.
9. Credit card transactions
In the case of credit card transactions the taxable amount is the marked selling price, that is, the amount actually charged to the customer by the supplier. Amounts withheld by credit card companies from their settlements with traders are part of the taxable amount and should not be disregarded.
10. Credit notes
A VAT-registered trader accounting for VAT on the basis of moneys received must issue to a VAT-registered customer a credit note showing VAT if there is a discount or price reduction allowed subsequent to the issue of an invoice. The effect of the credit note is to reduce the VAT deduction available to the customer on the basis of the original invoice. This has no effect on the liability of the person issuing the credit note since he or she is calculating liability by reference to the moneys actually received.
The cash receipts basis of accounting does not apply to a transaction where a supplier on the cash receipts basis grants a discount to a customer after issuing an invoice, but subsequently fails to issue a credit note.
11. Review of eligibility and cancellation of authorisation
Where an accountable person is authorised to account for VAT on the moneys received basis and, for a period of four consecutive months his or her turnover from taxable supplies to unregistered persons is less than 90% of total turnover, the accountable person should notify the local Revenue District accordingly by the end of the following month and indicate the actual percentage of such supplies. If the change in the level of such supplies to unregistered persons is of a marginal or temporary nature, the authorisation may be allowed to continue.
Where an accountable person is authorised to operate the cash receipts basis because his/her annual turnover is less than €1,250,000, that person must apply to have that authorisation cancelled where it is clear that the turnover will exceed the limit in any continuous period of twelve months.
Where an accountable person fails to notify the local Revenue District as in paragraph 11.1 above, the authorisation will be deemed to have been automatically cancelled with effect from the start of the VAT accounting period within which the notification should have been made.
Cancellation of an authorisation will have effect from the start of the VAT accounting period during which the person is notified of such cancellation by the local Revenue District or from the start of a later VAT accounting period if specified in the notice.
12. Changing from moneys received basis to invoice/sales basis
Where an accountable person who for any period is authorized to account for VAT on the monies received basis ceases to be so authorized, or ceases to be an accountable person, liability for VAT at the time of the change, or cessation, must be adjusted. Where the authorisation was issued for a period of more than 6 years the authorized period, for the purposes of this adjustment, is deemed to be for a period of 6 years. The adjustment is calculated as follows:
The total amount due to the person at the end of the authorized period shall be apportioned between each rate of VAT in accordance with the following formula:
(A multiplied by B) divided by C
A is the total amount due to the person at the end of the authorized period for goods and services supplied during the authorized period.
B is the taxable amount in respect of taxable supplies at each rate of tax in the twelve months prior to the date of cessation or in the authorized period, whichever is the shorter.
C is the total amount taxable in respect of total taxable supplies in the twelve months prior to the date of cessation or in the authorized period, whichever is the shorter.
However, the apportionment between the various rates of tax may be made in accordance with any other basis agreed between the accountable person and the local Revenue District. The amount so apportioned at each rate is a tax-inclusive amount and the tax included is to be treated as tax due for the period in which the cessation of the monies received basis occurs. No adjustment of liability is made where the cessation is occasioned by the death of the accountable person.
13. Changing from invoice/sales basis to moneys received basis
Where a VAT-registered trader already accounting for VAT on the invoice basis obtains permission to change to the moneys received basis, that trader is liable for VAT on any moneys received on and after the approved date of the change, excluding any payments on which VAT has already been accounted for in respect of goods and services supplied while accounting on the invoice basis.
14. Further information
Enquiries regarding any issue contained in this Information Leaflet should be addressed to the Revenue District responsible for the taxpayer's affairs. Contact details for all Revenue Districts can be found on the Contact Details Page
VAT Appeals & Communications Branch ,
Indirect Taxes Division,
This information leaflet which sets out the current practice at the date of its issue is intended for guidance only and does not purport to be a definitive legal interpretation of the provisions of the Value-Added Tax Act 1972 (as amended).