Chapter 4 –Moneys received basis

80. Tax due on moneys received basis

Summary

This section provides that a person may be authorised to determine his or her tax liability by reference to moneys received. The moneys received basis of accounting allows accountable persons to account for VAT when they actually receive payment from their customers instead of when the invoice issues.

VAT-registered persons may opt to account on the basis of moneys received (“cash receipts”) when their annual turnover does not exceed €2million, or when most (90% or more) of their sales are to persons – like private consumers – who can’t claim VAT deductibility. Normal obligations in relation to keeping records, issuing invoices, and so on – as outlined elsewhere in this Part – still apply to persons on the moneys received basis. However, persons on the moneys received basis of accounting are not allowed to use the rule in section 67(5) that allows the parties to agree to leave the tax unaltered on the invoice when the consideration changes.

Moneys received does not just cover cash – see definition of the term in section 2(2).

Details

(1) Persons entitled to the cash receipts basis are traders—

• (a) whose turnover is made up of not less than 90% of supplies to unregistered persons, or
• (b) whose turnover in a twelve-month period does not exceed €2,000,000 (with effect from 1 May 2014).
• Typically, retail outlets, pubs, restaurants, etc. are covered under (a). Traders must apply in writing to their local Revenue District for the necessary authorisation to use the cash basis and must provide the particulars referred to at paragraph (3) of Regulation 25 of the VAT Regulations 2010 together with their turnover details.

(2) Subsection (2) deals with certain scenarios in relation to the moneys received basis, from the point of view of determining tax due and payable.

• (2)(a) Paragraph (a) covers the situation where the VAT rate changes between the time goods and services are supplied and payment is received by the trader - in such circumstances the trader is liable at the rate of tax applicable at the time of supply.
• (2)(b) Paragraph (b) covers the situation where a trader changes from the invoice basis to the moneys received basis of accounting. He/she is not obliged to account on any payments received after the changeover where the payments relate to invoices issued prior to the changeover. In other words, tax isn’t due again when the money comes in.
• (2)(c) Paragraph (c) covers the situation where a supply is made at a time when the supply is not liable to VAT but payment is received after the supplies have been brought into the VAT net. In such circumstances no liability arises on the payment received. This could occur where a supplier exceeds the threshold and becomes an accountable person or a particular activity changes from being exempt to being taxable.

(3) The Minister may make an order to increase the turnover threshold of €2million specified in subsection (1)(b) above. Subsection (3) lays down the usual rules for the making of such an order.

(4) Revenue has power by regulation to cancel any authorisation issued under subsection (1) and to exclude from the cash receipts basis of accounting tax due in respect of certain supplies of goods or services. Regulation 25 of the VAT Regulations 2010 excludes tax chargeable in respect of —

• transactions between connected parties (the question of whether parties are connected is dealt with in paragraph (5)(b) of that Regulation),
• a supply of goods under a hire purchase agreement,
• a supply of construction services by a subcontractor to a principal contractor, where the principal is liable for the tax on a reverse charge basis, and
• a supply of goods where consideration does not consist wholly of money – see examples in Part 6.

(5) Where the supplier does not issue the relevant credit note in accordance with section 67(1)(b), in respect of a discount granted to a customer, then the tax that is attributable to the discount is due at the time the credit note should have issued. This effectively means that the cash receipts basis does not apply to the amount of the discount on that particular transaction.

For example: Goods are supplied from business X (trader) to business Y (customer), X is on the cash receipts basis. A discount is given, and X issues a credit note. This means that the customer’s VAT deduction is reduced. There is no effect on X’s VAT liability, because he/she accounts on the basis of cash receipts.

However, if there is no credit note, there is no change in Y’s liability – the subsection provides that the cash receipts basis does not apply to the amount it should have issued for. This ensures that the correct amount of VAT is accounted for.

(6) Tax on imports and the intra-Community acquisition of goods are excluded from the application of this section.

Relevant Date: Finance Act 2020