January 2025 threshold for cash simplification reporting €250,000 per annum
Small businesses and entrepreneurs will be able to opt for the cash-based VAT reporting option from 1 January 2025 if their annual sales are below €250,000. This is change from the €1.2m threshold for all businesses.
The cash simplification enables taxpayers to pay VAT only when they receive it; likewise only deduct input VAT when their suppliers’ invoices are paid. This is contrasted by the normal accruals basis which is on sales invoices issued and purchase invoices received.
VATCalc’s VAT Filer will enable accurate declarations of invoices in your VAT returns whichever basis you opt for.
EU member states have the option to allow small businesses to use the cash basis for VAT reporting, which provides flexibility and helps ease financial pressures. Under this system, VAT is only accounted for when payment is received from customers, rather than when an invoice is issued. Similarly, VAT on purchases is reclaimed when the business pays for the goods or services. This approach is especially beneficial for small businesses as it helps align VAT obligations with actual cash flow, reducing the strain of paying VAT upfront on invoices that may not be paid for some time.
EU VAT Directive option for cash-based VAT
Eligibility for the cash basis system is usually determined by the size of the business, with the European VAT Directive allowing member states to set their own thresholds, up to a maximum turnover of €2 million. The specific criteria, including turnover limits and industry sectors, vary from country to country within the EU, and some member states have implemented this option to a greater extent than others.
In Germany, small businesses with an annual turnover of less than €600,000 can use cash basis accounting for VAT reporting. Known as “Ist-Versteuerung,” this option helps smaller companies in Germany better manage their finances by allowing them to defer VAT payments until they receive customer payments. This system also applies to freelancers and certain professionals, such as lawyers and doctors, who may experience irregular income flows and therefore benefit from cash-based VAT reporting.
France also offers cash basis VAT accounting for small businesses under certain conditions. In general, businesses that provide services (such as consulting or craftsmanship) and have a turnover below €800,000 annually may be eligible to use this method. The cash basis is particularly advantageous for service-oriented businesses, where payments from clients may be delayed for long periods. The system allows them to postpone paying VAT until they receive payment, avoiding cash flow difficulties that could arise from upfront VAT payments.
Spain has implemented a similar system called the “IVA de Caja” scheme, which allows businesses with an annual turnover of less than €2 million to account for VAT when payments are received. This system supports small businesses by reducing their need to pre-finance VAT obligations.
Belgium also offers the cash basis scheme to businesses with an annual turnover of less than €2.5 million. These businesses can report and pay VAT when payments are received from customers, which is particularly helpful in maintaining liquidity.
