Having your liquidity in order is essential for the continuity of your company. With a liquidity budget, for example, you can look ahead and have insight into your financial options. We would like to explain four options and consequences of VAT that affect your liquidity.

The influence of the VAT declaration period on your liquidity

During the previous economic crisis that started in 2008, the tax authorities introduced a measure that VAT can be declared per quarter regardless of turnover. Many entrepreneurs took advantage of this at the time. You might too. Now that good liquidity is of vital importance for many entrepreneurs, it might be interesting to switch from quarterly returns to monthly returns for VAT, or vice versa. For the independent contractor taxes it is important.

For VAT refunds: go to monthly declaration

In these difficult times, it is good to reassess your current position with regard to VAT returns. If your company usually recovers VAT from the tax authorities, it is better from a liquidity position to submit a monthly return. You can easily request this from the tax authorities.

When paying VAT: go to quarterly declaration

If you are now submitting a monthly VAT return of your own choice, it is worth considering switching to quarterly returns. This helps your liquidity position considerably if you normally have to pay a lot of VAT to the tax authorities, and you may not qualify for the deferment scheme that was created due to the corona crisis.

Entrepreneurs who are obliged by the tax authorities to file a monthly return cannot easily switch. Nevertheless, our advice is to ask the tax authorities for this, if desired.

The influence of the invoice date on your liquidity

The date on which you issue an invoice can play a major role in the liquidity of your business. For the taxes as an independent contractor you can have the support of the expert.

You pay according to the invoice system

Most entrepreneurs have to pay VAT based on the invoice system. This means that you owe the VAT on your sales when you issue an invoice, or whichever is sooner when your customer pays you. You must issue the invoice no later than the 15th day of the month following the month in which your sale took place. If you have not yet issued the invoice and your customer has not yet paid, then the 15th of that month is the moment when you have become liable for VAT. 

So much for the theory

Two examples:

You sold something on March 30, 2020. You also invoice on March 30. You owe the VAT on your invoice in the March or first quarter return. You must pay the VAT to the tax authorities by the end of April at the latest.

You sold something on March 30, 2020. You invoice on April 1, 2020. You owe the VAT on your invoice in the April or second quarter return. You must pay the VAT to the tax authorities by the end of May or only at the end of July.

In our example, we do not consider the postponement regulations related to Coronavirus. But you can see that by waiting 1 day to issue your invoice, you will have to pay the VAT to the Tax Authorities three months later for quarterly returns. We often talk about 21% of your turnover, so do the math.