VAT based on income received or on orders made (invoice generated)

kdowling

I would love a second opinion on this.

I have a new company and I have been trading 10 months and have gone over the 75k threshold for VAT.

I didnt charge any VAT up to that point and started charging after I reached 75k.

I reached 75k based on orders made rather than payment received and i am still chasing a good few invoices for payment (confident i will get them all)

My accountant recommends that I sort VAT based on income received as it will be less messy but the problem with that is that I didnt charge VAT for many of the orders before I reached the threshold and he says that i have to pay VAT on everything that is paid after I registered.

So I will be paying VAT now on orders that are paid late even though i didnt charge VAT on their invoices. My margins are not great and it will mean some of them will have gone through at a loss!

Is it that big of a deal or that messy to charge based on orders made so that at least I wont have to be paying VAT on orders that I did not charge the VAT?

Whilst I have to do a lot of chasing up for payment and there are delays I do get paid eventually.

kdowling

Do the mods think this would be better in the taxation discussion?

Calahonda52

Are your clients registered for VAT?

Your accountant is right, cash accounting is much simpler than accrual accounting, as if your clients delay paying you beyond the VAT return date, you will have to pay the VAT before you receive payment so it increases your working capital requirement.

If your clients are not registered for VAT your costs to them will go up by 23%

If they are registered for VAT then a revised invoice, including VAT wont cause them any grief

kdowling

https://www.boards.ie/discussion/comment/121006779#Comment_121006779

Thanks for that reply,

The vast majority of my clients are not registered for VAT unfortunately.

nompere

I think there are two possible approaches to this.

You could start off by registering for VAT on the invoice basis, and then apply to change to the cash receipts basis once all your existing bills have been paid.

Or you could ask your accountant whether in the light of what Revenue say about switching to cash receipts, your existing debtors are not within the cash receipts basis.

Revenue say this:

Moneys received do not include any payments on which VAT has already been accounted for in respect of goods and services supplied.

I believe that an invoice issued prior to VAT registration has had VAT accounted for - there wasn't any because you weren't registered.

The first way is simpler, and doesn't require Revenue to say whether they agree with a particular interpretation of their guidance.

ThreeGreens

To be clear, under the invoice basis, you owe VAT (or not as the case may be) based on your invoice date; not the date that you are paid.

So for example.

1. You receive an order
2. You issue an invoice
3. You get paid.

VAT is owed on the earlier of 2 and 3 (usually you issue the invoice before you get paid, so 2 is the relevant date).

So if your invoice was issued without VAT, before your registered then you don't owe VAT on that, even if you get paid later.

So check when you issued the invoice on these cases.