Cash Receipts Basis for VAT in Ireland: A New Company Guide

What changes between invoice and cash-receipts accounting?

Revenue describes the invoice basis as the normal method: sales VAT can become accountable before the customer pays. The moneys received basis instead looks to receipt of payment for transactions within the scheme. Cash here does not mean only notes and coins; electronic receipts also need to be considered.

Think of the decision as one about timing and administration, not a lower tax rate. A company with long customer-payment terms may find the timing valuable. A business whose customers pay immediately may see much less benefit. Compare the expected cash-flow difference with the work needed to allocate receipts, handle exceptions and monitor continuing eligibility.

• Revenue: moneys received accounting for a business

Check the two eligibility routes without confusing thresholds

Revenue allows a VAT-registered person to apply where turnover does not exceed, or is not likely to exceed, EUR 2 million in any continuous 12-month period. Alternatively, at least 90% of supplies must be to customers without full VAT-deduction entitlement or who are unregistered. These are alternative routes, not two conditions every applicant must meet.

Prepare a credible turnover forecast and evidence of the actual customer mix. Do not count all customers with business names as fully VAT-deducting businesses, or assume every overseas customer is a private consumer. Ask the accountant how to classify uncertain cases. The EUR 2 million scheme test is not the threshold for whether a business must register for VAT in the first place.

A registration decision and the choice of accounting basis are separate questions. Do not register only because another founder says cash accounting is easier; review your supplies and circumstances first. The linked registration guide covers the wider registration assessment.

• Revenue: who may opt for the moneys received basis

Apply correctly at registration or before a later switch

For a first VAT registration, Revenue says to indicate the requested basis in the relevant part of the registration application. An already registered trader must apply to the Revenue office in writing to change. Do not treat a bookkeeping software setting as an application or evidence of approval.

Revenue asks for business identity, the VAT number where appropriate, activity, relevant historic customer-mix information, a forward estimate and turnover details where applicable. The historic information covers the shorter of the preceding 12 months to the relevant taxable-period end or the period since business commenced. Keep the calculation supporting the application rather than supplying a guess.

Confirm the effective date from Revenue's approval: its guidance refers to the start of the period in which approval is issued, or a specified later date. Ask the appointed adviser who will prepare the application, handle questions and retain the decision. An accountancy enquiry or service payment does not guarantee approval.

• Revenue: application details and effective date

Map excluded transactions before relying on the benefit

Revenue's exclusions include connected-person transactions, construction services from a subcontractor to a principal contractor, intra-Community acquisitions of goods and services, imports into the State and the specified pre-July-2008 long-lease property transactions. Do not apply a single cash-receipts setting to those items without reviewing their separate treatment.

Give the accountant a transaction map: domestic customer sales, group-company dealings, purchases from abroad, imports and any construction or property activity. A small company can have several treatments in the same return. Being eligible at business level does not make every transaction eligible. For cross-border business, explain who supplies whom, where and in what capacity rather than labelling the whole company international.

• Revenue: transactions outside the moneys received basis

A worked example: an invoice paid in a later period

Assume a fictional consultancy is already authorised for the moneys received basis and makes an ordinary domestic sale covered by it. The full supply and invoice occur in September, with payment received in November. At an assumed applicable 23% rate, a net charge of EUR 1,000 gives sales VAT of EUR 230 and a customer total of EUR 1,230. Revenue's current standard rate is 23%, but the correct rate must be checked for the actual supply.

Under the example's approved cash-receipts treatment, the sales VAT follows the receipt in November, rather than the September invoice. This does not mean the invoice disappears from September bookkeeping. Keep it in the debtor ledger and match the later receipt to it. Allocate to the company's actual VAT periods; do not assume every company has monthly returns.

If the customer pays in instalments, retain an allocation showing what each receipt settles and ask the accountant to calculate the corresponding liability. If terms involve deposits, refunds, credit notes or several rates, review those facts separately rather than applying this single-payment illustration mechanically. No tax saving or future approval is implied.

• Revenue: invoice and receipts basis compared
• Revenue: current VAT rates

A bank payout is not always the full amount received

Revenue includes sums received on a supplier's behalf and says an agent's retained fees and expenses are included in moneys received. It also addresses offsets settling a transaction and amounts withheld as Professional Services Withholding Tax. Do not assume the net deposit shown by a bank feed is the whole VAT-relevant receipt.

Where a processor or agent is involved, establish its role and when money is received on the company's behalf; do not automatically use the later bank-payout date. Reconcile gross customer amounts, deductions, refunds, charges and settlement balances. Review the platform agreement and reports with the accountant, particularly where the platform acts as a supplier rather than merely collecting payment.

A transfer from a director, a loan drawdown or money moved between the company's accounts should not be coded automatically as a customer sale. Bank reconciliation is a starting point for investigating the source of money, not a rule that every credit is sales turnover.

• Revenue: sums included, agents, deductions and offsets

Keep invoices, correct rates and purchase evidence

Normal VAT invoice obligations continue. Revenue's invoice guidance includes required identification, numbering, supply information and tax details, with specific rules for special cases. A card-terminal receipt should not automatically be treated as satisfying every invoice requirement. Keep the sales document and receipt trail linked.

If a rate changes between supply and later payment, Revenue says to use the rate applicable when the goods or services were supplied, not the later payment-date rate. Preserve the supply date and rate history; do not let software overwrite old invoices with a newly configured default.

The sales timing method does not make every purchase deductible. Assess taxable business use, restrictions and evidence separately. Revenue requires supporting records such as a valid VAT invoice or relevant Customs receipt for a reclaim. Do not treat the scheme as a blanket rule to recognise all purchase VAT only when cash leaves the bank, or to reclaim tax on private or blocked expenditure.

• Revenue: information required on a VAT invoice
• Revenue: rate changes and delayed receipts
• Revenue: who can reclaim VAT and supporting evidence

Prepare a cutover schedule so old invoices are not taxed twice

Revenue requires authorisation before a change from invoice basis. Its guidance excludes receipts on which VAT has already been accounted for. Before the approved start date, export an aged-debtor list and identify which invoices have already contributed sales VAT to a filed return. Match later collections against that schedule.

Document the approved date, opening balances, unpaid invoices, outstanding credits and responsible preparer. Test one old invoice and one new covered sale in the bookkeeping system, checking both the VAT report and debtor balance. Review exceptions with the accountant before a return is submitted. A global toggle without a reliable opening schedule can duplicate liability or omit it.

Do not retrospectively rewrite previously filed returns simply because the new method would have produced a preferred timing result. If earlier filings may be incorrect, ask for a separate review and the appropriate correction process.

• Revenue: approved changes and previously accounted-for VAT

Monitor growth and budget for leaving the scheme

Eligibility needs continuing review. Revenue's guidance describes four-consecutive-month monitoring of customer mix and turnover, with notification by the end of the following month in the circumstances it specifies. It also explains that a marginal or temporary customer-mix change may be allowed. Ask which monitoring test applies to the company's eligibility route and retain the calculations.

Do not assume authorisation lasts forever or that a founder can choose any convenient cancellation date. Failure to notify can lead to cancellation effective from the start of the period in which notification should have occurred. Obtain advice as growth or a customer-mix change approaches the conditions, rather than discovering it during year-end accounts.

On leaving, Revenue provides for a cessation-period adjustment on outstanding debtors. Build that potential cash requirement into the forecast before spending collections. Have the accountant calculate the adjustment using the applicable rules and rates; the bank balance alone cannot establish it.

• Revenue: eligibility monitoring, notification and cancellation
• Revenue: adjustment when leaving the receipts basis

VAT3 filing and company accounting still need a complete picture

Cash receipts does not mean no return when customers have not paid. Revenue's VAT3 guidance includes sales liability, deductible purchases and relevant cross-border items; a zero position still needs the required return. Confirm the assigned periods and deadlines, and reconcile the return to the underlying records.

Keep company accounting and Corporation Tax work separate from this particular VAT authorisation. CRO's proper-books guidance requires records capable of explaining the transactions and supporting the company's financial position. Unpaid customer invoices, supplier debts and other non-bank entries still matter. Tell the accountant which VAT method is in use without assuming it dictates the basis for every other report.

• Revenue: completing VAT3, including a zero return
• CRO: adequate accounting records

What to bring to an accountant before deciding

Ask for a comparison using your real payment cycle, not a general promise that cash accounting is always best. Bring the current registration and authorisation position, forecasts, sample contracts, customer categories, unpaid invoices, processor reports and a map of excluded transactions. Explain any planned imports, group dealings or construction work at the outset.

StartCompany.ie connects businesses with qualified Irish accountants. Request a quote identifying whether an eligibility review, application support, bookkeeping configuration, opening-debtor reconciliation, periodic returns and monitoring are included. Confirm the agreed total payable and responsibilities before instructing work. Specialist advice or a transition review should not be assumed to be included in a formation package or routine filing fee.

• Identify the actual VAT basis and evidence of its approved start date.
• Prepare turnover forecasts and customer-mix support.
• List excluded transactions and unusual payment arrangements.
• Reconcile opening debtors, old VAT and later collections.
• Agree return preparation, review and eligibility-monitoring responsibilities.
• Retain the decision and schedule a review when the business changes.