Cash VAT regime: how it works and duration

  • The VAT cash scheme, also known as “cash accounting”, offers entrepreneurs and the self-employed the opportunity to deferment of VAT payment for supplies of goods and services at the time of collection.
  • To access the VAT cash scheme, taxpayers must they are active in the exercise of businesses, arts or professions and have a turnover that does not exceed two million euros.
  • Despite its flexibilities, the VAT cash regime However, it does not cover all functions active or passive.

VAT in cash is a particularly interesting solution for small and medium-sized businesses. This regime, introduced for alleviating liquidity problems which can affect business activities, changes the traditional approach to paying VAT, creating opportunities and at the same time imposing specific requirements.

Businesses, especially in the case of SMEs, can therefore be made easier to pay this tax: let’s see what is VAT in cash, how does it work, who can access it and what are the relevant exceptions.

What is the VAT cash scheme and how does it work?

The VAT cash scheme, also known as “cash accounting“, represents an innovative approach to VAT managementintroduced by article 32-a of Legislative Decree 83/20121. It offers entrepreneurs and the self-employed the opportunity to manage VAT in a more fluid way and according to the financial reality of their business. But what does it actually mean?

In practice, the regime allows you to do so deferment of VAT payment for supplies of goods and services. Instead of tax being paid at the time of invoicing or transaction, VAT becomes due only when payment is received from the customer. This means that the tax is not paid in advance on the amount invoiced, but only on the amount actually collected.

At the same time, the right to deduct VAT on purchases follows a similar logic: the discount becomes possible only at the time of payment of payments to suppliers and not at the time of invoicing or execution of the transaction.

An important feature of this regime is its temporary nature: VAT becomes payable one year after the transaction takes placeunless special situations arise, such as the customer being subject to insolvency proceedings.

This mechanism guarantees a certain flexibility, but also a time limit within which the VAT must still be paid. If the cash VAT regime therefore proves to be a viable option for many, However, it is not accessible to everyone. Let’s see what the requirements are.

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Requirements to access the VAT cash scheme

Exists specific criteria which determine who can benefit of this tax opportunity. The requirements for joining the VAT cash register are clearly described to ensure that it is implemented correctly and efficiently.

First, the regime is open taxpayers who are active in the exercise of business activities, arts or professions. Which, however, includes a wide range of economic activities, from commercial to professional, thus offering a certain flexibility in terms of the types of permitted activities.

Another fundamental criterion is linked to turnover. To access the VAT cash scheme, taxpayers must have achieved, in the previous year, turnover not exceeding two million euros. For new businesses, this limit applies to the current year’s revenue forecast.

VAT for cash how to issue an invoice

This requirement is intended to focus the scheme on SMEs, for whom liquidity and VAT management can be particularly critical.

In addition, the scheme is designed specifically for operations carried out on the territory of the state and to transferees or clients who themselves carry out business, artistic or professional activities.

also non-commercial entities they can choose to adopt cash VAT, but only for the commercial activities they can carry out. There are also specific cases of exclusion, involving active or passive acts.

VAT per cash: cases of exclusion

In In some cases it is not possible to adopt the VAT status in cash. Those who do not comply with the requirements we saw above cannot return. In addition, even certain active or passive activities are excluded from the possibility of observing this favorable VAT regime.

Let’s see which active activities (that is, generating economic income) and passive activities (that generate economic expenses) are exempt under the regulations provided by the Revenue Service.

1. Active functions

Before we delve into the specific exceptions, it’s important to clarify what “active operations” means. In the tax sector, Active are those that concern the sale of goods or the provision of services by a company or professional or that generate income for economic activity.

Despite its flexibility, However, the cash VAT regime does not cover all active activities. Some of them are actually excluded:

  • functions below special VAT regimes: includes activities such as agriculture, allied activities, profit margin plan and travel and tourism agency activities;
  • functions with non-entrepreneurs or professionals: if the services or goods are sold to customers who are not engaged in business, arts or professions, these transactions are not subject to the VAT cash regime.
  • functions with reverse charge;
  • operations with deferred collection: some already have deferred collection without an annual limit, such as sales to the Government, to health care bodies or sales of medicinal products by pharmacists;
  • international business: intra-Community supplies, exports and similar operations, where the supplier does not charge VAT on the invoice.

It is noted that, if a taxpayer carries out both special status transactions and under the normal regime, it can charge cash VAT only on the latterprovided that you have selected separate accounting for the activities.

2. Passive functions

Passive trading, on the other hand, refers to purchases of goods or services by a company or professional. These transactions represent financial outflows. Also, in this case, certain passive operations are excluded from the VAT regime in cash:

  • chargeback purchases;
  • intra-Community purchases of goods;
  • imports of goods;
  • exports of goods from VAT warehouses.

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How to access the VAT cash scheme

The choice to join the new regime is expressed by the taxpayer through decisive behavior, that is, acting in a manner consistent with participation in the regime. It is then necessary to formally notify this choice to the Revenue Service through the VAT return, specifically in Part VO, relating to the year in which the scheme takes effect.

A critical aspect of this choice is its duration: once the cash VAT scheme is chosen, the taxpayer commits to it for at least three years. The only exception to this rule is the case where the turnover exceeds the limit of two million euros. In this case, the taxpayer automatically exits the regime starting from the month or quarter following the one in which the limit was exceeded.

After the minimum period of three years, the option for status remains in effect for each subsequent yearunless the taxpayer decides to revoke it. The withdrawal methods are the same as for membership.

Adopting the VAT-in-cash regime affects the timing of payment or deduction of VAT, but does not change other procedural and accounting obligations, such as billing and registration. Who chooses it cash accounting must indicate on the issued invoices the note that it is a transaction with “VAT per case” in accordance with article 32-a of the legislative decree of June 22, 2012, no. 83.

VAT per cash – Frequently asked questions

What is VAT per cash?

Cash VAT is a tax scheme that allows entrepreneurs and the self-employed to pay VAT on sales invoices only when they actually collect the payments.

How do I enter a VAT invoice in cash?

When issuing an active invoice under the cash VAT regime, it is necessary to indicate the wording: “Cash VAT operation, as provided for in art. 32 bis of Legislative Decree 83/2012, which was converted into Law 134/2012”.

When is VAT due?

In the cash VAT regime, tax becomes payable when payment is received for an invoice issued. In addition, if the amount is not collected, the VAT is still payable one year after the invoice is issued, unless special situations arise such as the customer being subject to insolvency proceedings.

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