What is the difference between standard taxation and actual taxation?
February 9, 2022 | 30,00 EUR | answered by Friedhelm Sauer
Dear tax advisor,
I have a question regarding value-added tax and hope that you can help me. I run a small online trading company and am currently unsure about the regular taxation and the cash accounting method.
To the current situation: So far, I have operated my business using the regular taxation procedure, where the value-added tax is calculated based on the agreed invoice amounts. However, I have now heard about cash accounting, where the value-added tax only has to be paid to the tax office once the invoice amounts have actually been paid.
My concerns lie in not knowing exactly which method is best suited for my company. I wonder if cash accounting could be advantageous for me or if I should continue to use regular taxation. I want to ensure that I am handling my taxes correctly and avoid making any mistakes that could lead to unexpected problems.
Could you please explain to me what exactly the difference is between regular taxation and cash accounting? What are the advantages and disadvantages of both methods and which solution would you recommend for my company?
Thank you in advance for your help!
Sincerely,
Sophia Kaiser
Dear Mrs. Kaiser,
Thank you for your question regarding the standard taxation and cash-based taxation in relation to value added tax. It is important to understand the differences between these two methods in order to choose the most suitable method for your company.
Under standard taxation, the VAT is calculated based on the agreed invoice amounts. This means that the VAT becomes due at the time of issuing the invoice, regardless of whether the customer has already paid the invoice or not. Standard taxation is the default method used by most companies.
On the other hand, cash-based taxation works differently. Here, the VAT is only paid to the tax authorities once the invoice amounts have actually been paid. This means that the VAT becomes due only when the money has actually been received in the company's account. This can be advantageous for companies with longer payment terms, as they only need to pay the VAT once they have actually received the money.
Both methods have their advantages and disadvantages. Standard taxation offers a clear and simple billing process, as the VAT becomes due at the time of invoicing. Additionally, companies can claim input tax even if the invoices have not been paid yet. On the other hand, cash-based taxation can provide liquidity advantages, as the VAT only needs to be paid when the actual payment is received.
The most suitable method for your company will depend on various factors, such as the nature of your business, the amount and regularity of payment receipts, etc. It would be advisable to analyze the exact numbers and conditions of your company in order to make an informed recommendation.
I would recommend contacting a tax advisor who can conduct a thorough analysis of your situation and recommend the most suitable method for your company. I am happy to assist with any further questions or provide personal consultation.
Best regards,
Friedhelm Sauer
