Payment based VAT is disabled from tax return for self-assessed taxes from 1.1.2025 onwards, but it can still be reported if it concerns periods before 2025 . It is also possible to fix payment based VAT related information to the previous periods. Payment based value added tax checkbox has been removed from tax return for self-assessed taxes.
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Small undertakings (companies) are eligible to pay value added tax of sales and purchases on cash basis. This article includes a summary about the processing of payment based VAT.
General
The law about payment based processing applies to companies that have maximum revenue of 500 000 euros per financial year. The company itself can choose between accrual basis and payment based processing of value added tax. Also switching over to payment based processing is up to the company to decide. The function can be activated whenever in the VAT defaults view. Please take a closer look at the instructions before activating the function.
The payment based processing of value added tax can be activated in Procountor environments that have 1 month as the VAT reporting period. The payment based processing applies only to the VAT of domestic sales and purchases.
Payment based value added tax in Procountor
Payment based processing of value added tax has an effect on the reporting and payment time of value added tax in particular. Accounting is still made on accrual basis in a way that the value added tax of sales and purchases is entered to the balance sheet right at the moment when accounting entries are made. If your company uses payment based VAT processing, the VAT of sales and purchases is entered to a specific balance sheet account to wait for the moment of VAT payment. When a payment transaction is carried out, value added tax can be reported and paid to the tax administration.
The time of value added tax reporting and payment is controlled by VAT date field.
After the payment based VAT has been enabled, a VAT date field becomes active in accounting pages. This field is used to determine the date of value added tax reporting to the tax administration of the receipt in question. In addition, a new VAT status for the payment based VAT is used with the accounting entries: Domestic, payment-based.
Payment based value added tax procedure
Example above includes a sales invoice that is entered to the period of January. This means that the accounting date will also be a date in January. The due date of the example invoice is February 15th. The invoice is not paid during January. The due date information transfers to the VAT date field of the invoice’s accounting page.
The accounting page date of the invoice is in January: this means that accounting entries related to the sales transaction are created to the period of January. These sales entries include the sales VAT. However, the sales VAT can’t be included in the tax return for self-assessed taxes, since VAT payment must be done not until the same period that the invoice is paid in. A VAT summary is created in January that transfers the sales VAT to balance sheet account 2931 Payment based VAT to wait for the future.
The VAT summary transfers all value added tax transactions to the payment based VAT account
- that do not have a VAT date within the active period, and
- that do not have a payment transaction.
These value added taxes will remain waiting for a payment transaction before they are transferred to the tax return for self-assessed taxes.
When the sales invoice is paid, the payment date is updated to the VAT date field. The example above presents a situation where the customer has paid the invoice a couple of days late, so the VAT date field is updated with the date of February 20th in accordance with the payment transaction date.
The sales invoice is in Paid or Marked paid status after the payment transaction has been made. In addition, the VAT date is in the period of February. When a VAT summary is created for February, it will automatically detect that the sales invoice has been paid. The VAT summary will include an entry that transfers the VAT liability in account 2931 Payment based VAT to the account 2930 VAT liability.
The VAT summary is included in the tax return for self-assessed taxes of February that includes also the sales value added tax of the example invoice. Value added taxes are going to be paid on the 14th of April that is the due date of the February’s period. This way the VAT payment is done in accordance with the regulations of cash basis VAT procedure. The tax return of self-assessed taxes will have an accounting page dated on the 14th of April in which the payable value added tax is transferred to account 2935 MyTax transactions (the account is used to follow tax payment transactions).
Accrual basis value added tax procedure
Understanding the payment based VAT procedure may be clarified when it is compared to the accrual basis value added tax procedure that is the default setting in Procountor. In accrual basis VAT procedure, the value added tax of sales and purchases is reported and paid immediately in accordance with the accrual basis VAT procedure rules.
The example above presents a sales invoice that is dated in January. Because of this, the accounting receipt generated by the invoice has also a date that is in January. A VAT summary is created for January which includes all accounting entries of January.
Sales VAT creates an entry to account 2930 VAT liability in the VAT summary. January’s VAT summary is included in January’s tax return for self-assessed taxes. January’s tax return creates an accounting page that is dated 12.3.20xx; the accounting page includes a transaction of the payable VAT to the account 2935 MyTax transactions.
If value added tax is reported and paid to the tax administration using the accrual basis VAT procedure, VAT of the previous example would be reported and paid in January’s report on 12.3.20xx.
If value added tax is reported and paid to the tax administration using the payment based VAT procedure, VAT of the previous example would be reported and paid in February’s report on 12.4.20xx.