What is the accrual basis?

The accrual basis (criterio de devengo) is one of the principles that may be applied to how amounts related to invoices are reported and paid. It mainly affects when and how VAT (IVA) is paid on the products or services provided to customers.

What do “accrual” and “to accrue” mean?

Accrual (devengo) refers to the taxable event that gives rise to the tax obligation. For example, in the case of the sale of a product, VAT accrues at the time the sale takes place.

Accordingly, to accrue (devengar) is the right that someone acquires to receive a sum of money for work or a service.

What is the accrual basis?

The bases (accrual and cash) are the different methods established by law for reporting and paying the taxes corresponding to each invoice, for both income and expense invoices.

Under the accrual basis, invoicing data are reported in the same tax period in which they arise. Once the product has been sold or the service rendered, the invoice is reported, regardless of whether it has been collected.

Features of the accrual basis

As noted above, invoices accrue at the time they are issued.

This creates a problem when the invoice has not yet been collected. The issuer of the invoice becomes liable to pay VAT that it has not yet received while, on the other hand, the customer deducts an expense that it has not yet paid.

What is the cash basis?

The cash basis (criterio de caja) for VAT works in exactly the opposite way to the accrual principle. In other words, under this basis invoices accrue when they are paid or collected rather than when they are issued.

It is a voluntary regime available to any business or professional and to any activity, subject to exceptions. To opt into it, the following requirements must be met:

• Annual turnover must not exceed €2 million.

• Annual collections from the same customer must not exceed €100,000.

• The invoicing must not be intra-Community.

• The transactions must not be covered by another special VAT regime, such as the agricultural regime.

• Paid invoices must be reported within a maximum of 4 years.

• An invoice that has not been paid must be reported by December 31 of the year following its receipt.

• If the business switches to the accrual basis, it cannot return to the cash basis until 3 years have elapsed.

Disadvantages of the cash basis

Although opting into the cash basis may be a good option for certain activities or professionals, it also has certain features that may be negative:
• Administrative complexity. The differences from the accrual basis mean that some knowledge of the tax regime is required. In addition, invoicing software works with the accrual date, which makes automated tax filing difficult.

• The invoice cannot be deducted until it has been paid in full. Companies with powerful customers may be pressured not to opt into the cash basis.

• The need to provide more information to the Spanish Tax Agency (AEAT) about the company and its customers. The recipients of these invoices will have to provide their details, so they will prefer suppliers that have not opted into this system.

It is for these reasons that most companies choose to remain on the accrual basis: for its simplicity of application and to avoid being rejected by some customers.