Answer given by Mr Moscovici on behalf of the Commission

7.7.2016

Under the normal VAT rules, a business must account for the tax due on an accruals basis, which means that the VAT is accounted for on sales, or reclaimed on purchases regardless of consideration being paid. The VAT Directive[1] foresees, however, the possibility for the Member States to depart from these rules in respect of certain transactions or certain categories of taxable persons through an introduction of the so-called cash accounting scheme. Under such a scheme VAT becomes chargeable on sales only when consideration has been received in cash by the trader. Similarly, input tax can be claimed only once the VAT has been paid on a purchase. The main rationale for the cash accounting scheme is to assist enterprises with their cash flow management problems.

The legal basis for cash accounting is Article 66(b) of the VAT Directive in respect of outputs and a combination of Articles 66(b) and 167a of the VAT Directive in respect of both outputs and inputs. The scheme is currently optional for Member States, but widely applied. With reference to the particular situation of Small and Medium-sized Enterprises (SMEs), 22 Member States apply SME specific cash accounting schemes which, however, differ significantly in the way they function.

Within the framework of the currently ongoing review of the special scheme for small enterprises under the VAT Directive, the Commission will consider the streamlining of the provisions on simplification measures, including the cash accounting. The Commission's proposal is to be expected by the end of 2017.

• [1] Council Directive 2006/112/EC of 28.11.2006 on the common system of value added tax (OJ L 347, 11.12.2006).