VAT on collection (cash accounting)

What VAT on collection is

VAT on collection (cash accounting for VAT) is an optional scheme where VAT chargeability (when you owe VAT to the state) arises on the collection date of the invoice, not the issue date. Symmetrically, the right to deduct input VAT arises on the payment date to the supplier.

Who can apply

• Companies with turnover below the annual legal threshold

• The option is exercised by notifying the tax authority, effective from the 1st of the following month

Pros and cons

• Pro: you don't pay VAT on uncollected invoices - helps cash flow for companies with long payment terms (high DSO)

• Con: more complex accounting - every document must be tracked to collection/payment; input deduction is deferred until payment

Operational impact

The scheme requires exact matching between invoices and collections/payments. Without a system that automatically links a bank payment to its invoice, you risk mis-declaring chargeable VAT in the VAT return.

Common mistakes

1. "I deducted VAT on invoice receipt" - Under cash accounting, deduction arises on payment to the supplier, not on invoice receipt.

2. "I didn't track partial collections" - Chargeable VAT is computed pro-rata to the collected amount.

3. "I forgot the threshold" - Exceeding the threshold forces exit from the scheme; failing to flag it correctly causes VAT return errors.