Cash accounting scheme for VAT

What it means

The VAT Act contains several special schemes, margin taxation of second-hand goods among them. Under this heading Slovak practice means the one where the tax arises when payment is received rather than when goods or services are supplied.

It moves both the tax point and the input VAT deduction: the payer declares tax once paid and deducts only once they have paid their own supplier. A partial payment brings a proportional share of the tax into the return.

A payer in the scheme remains a full VAT payer: returns and control statements are filed as usual, only the moment the tax arises changes. Some supplies fall outside the scheme entirely, such as those under the reverse charge or supplies of goods to another member state, and they are taxed under the general rules.

How it works in practice

It is open to a payer whose turnover for the previous calendar year stayed under the statutory limit and who is not in bankruptcy or liquidation. Entry and exit are notified to the tax office in writing and take effect from the start of a tax period.

Every invoice has to carry the wording that tax is applied on receipt of payment. The software must match each payment to a specific invoice, so the scheme cannot be run without a clean sub-ledger of receivables and payables.

It suits above all a small service company whose large customers pay on long payment terms: tax is not paid out of money that has not yet arrived. Every month we match incoming and outgoing payments to invoices and split partial payments into base and tax, so the return reflects what actually reached the account.

What to watch out for

The wording binds the customer too, even one outside the scheme: from such an invoice they may deduct only as much as they have actually paid. A bookkeeper who misses the note and deducts the whole tax loses it at audit, with late-payment interest on top.

If turnover passes the limit during the year, the payer has to leave the scheme and notify it in time. Whoever does not track turnover keeps declaring tax on payments when it should already follow supplies, and then corrects every affected period with an amended return and late-payment interest.