This new scheme is provided for in the Council Directive 2006/112/EC which states that in cases where a taxpayer has postponed the tax point of its sales to the effective date of payment, the point at which they are entitled to recover VAT on purchases may also be postponed until this VAT has been effectively paid to the supplier.
Although this special cash accounting system is already in force in a number of other EU countries it has not to date been applicable in Spain. It is seen as an important VAT change aimed at helping small and medium sized businesses to improve cash efficiency.
The scheme will allow taxpayers with a turnover of less than 2 million euros (EUR), and who also do not receive cash payments from individual clients over EUR 100,000, to postpone the tax point for the output VAT which they charge until the moment the client pays (whether the payment received is partial or full). In operating this scheme, taxpayers must be able to provide evidence of payment dates. This is a double accounting scheme, which means that the business applying it must use it for postponing the tax point of its supplies as well as for postponing the point at which deductibility is claimed on its purchases. Accordingly, both output and input VAT will have to be accounted for when the effective payment is made (by the client and by the business to its suppliers).
The new accounting regime is optional, but once a business has decided to apply it, there is a minimum duration of one year for participation. Furthermore, it will apply to all of its transactions except for those that are legally excluded from this regime such as intra EU acquisitions, transactions where the reverse taxpayer mechanism applies, exempt exports, etc. The business can decide to waive its application but this will mean it cannot apply the scheme again until three years have elapsed.
An anti-avoidance rule will also be introduced to prevent artificial delays. Under this rule, the tax point will be deemed to take place, at the latest, on 31 December in the year after the transaction took place in cases where no payment is made before.
Clients of businesses that decide to apply this regime will also need to postpone the recovery of their input VAT to the time when they effectively pay their supplier invoices. Accordingly, from 2014, companies will have to be particularly aware of this new situation to be able to cope with two sets of invoices, the traditional invoices that they can immediately receive credit for without having to wait for payment, and invoices that need to wait until effective payment is made. In this respect, a supplier will have to expressly indicate on its invoice that this cash scheme is being applied.
This new regime will entail additional record keeping obligations for both the supplier and the client as they will need to record effective payment dates, as well as the means of payment. This will require a quite burdensome VAT registry as it will be necessary to record details of the invoices when issued and when paid in additional fields. This is an important change in the IT systems of companies. Likewise these new invoices will have to be reported in new boxes in VAT returns and other informative returns.
Overall we can conclude that this new system will improve the tax situation of the small entrepreneurs who decide to apply it but will create additional obligations for their customers who regardless of whether they have opted for it themselves will need to take account of the new rules. This will not only impact on the financial situation of these companies who will now have to wait longer to claim VAT credits but they will also have to invest in updating their IT systems to capture and appropriately deal with these new invoices.