When you are registering your business for taxes in Ireland (TR2 Form), some of the questions you answer may seems inconsequential. But you need to thread carefully, as one question in particular could hamper your businesses cash flow.
And that is question #25 on the TR2 form, which asks you if you want to opt in for using the cash receipts basis for accounting for goods and services.
What is the Cash Receipts Basis for Accounting for VAT?
Under the cash receipts basis, you account for VAT only when you receive payment from the customer.
The alternative is the invoice basis, where you account for VAT at the point in time that you issue the invoice to your customer.
It may seem to be not that important, but lets look at an example of the impact that this can have on your cash flow.
Example of Cash Flow Impact
Cash receipts basis:
You issue an invoice on 25 February 2026 for €5,000 + €1,150 VAT.
The customer does not pay you until April 15th.
This VAT does not need to be included in your VAT return until you prepare the March/April 2026 return, and you will pay your net liability then on the 23rd of May.
Therefore you have received the cash from the customer over 1 month before you need to pay Revenue.
Under the invoice basis:
Using the same dates amounts and dates as above.
When you as a business are using the invoice basis, then the sales invoice raised needs to be included in your Jan/Feb VAT return. Therefore you will pay Revenue your net liability on 23 March 2026 to Revenue.
So, in this example you are paying over the VAT almost a month before you have received a payment from the customer.
You are effectively funding the VAT for Revenue until payment is received.
Who Can Use the Cash Receipts Basis?
Under Irish VAT rules, the cash receipts basis is generally available to:
- Businesses supplying goods or services mainly to non-VAT registered customers
- Businesses whose turnover is below a threshold of €2 million on any continuouse 12 month period.
- Professional services firms (accountants, solicitors, consultants, contractors etc.)
- Construction subcontractors
Most small and medium Irish service businesses qualify.
And does it impact when you can claim the VAT back on Purchase invoices?
Whether you are using the cash receipts basis or invoice basis for accounting for VAT on your sales invoices, it won’t change how you treat VAT on purchases.
As soon as you receive an invoice from a supplier it can be included in the next VAT return, you do not have to wait until its paid to claim back the VAT – once you pay them within 6 months.
Who cannot use the cash receipts basis?
The following individuals/businesses cannot unfortunately avail of the cash receipts basis for accounting for VAT in Ireland:
- Businesses with annual turnover > €2m
- Transactions with connected persons
- Subcontractors in the construction industry
- Intra community acquisitions of goods and services
- Importing goods into the state
Disclaimer: this blog post is for informational and educational purposes only and should not be construed as financial advice.
