Could the cash basis solve your cash flow problems?

[jrineakter]

The cash basis is a special VAT regime , which SMEs and self-employed persons can opt for voluntarily, which consists of delaying the payment of VAT to the Treasury on invoices issued until they are collected.

One of the objectives of this measure, which the Spanish Government approved in times of crisis, was precisely to solve the liquidity problems that many companies and self-employed workers were suffering. But can the cash criterion really solve cash flow problems ?

The cash basis for increasing liquidity. Does it work?
The cash-basis tax regime was a measure included in the Entrepreneurs Act that came into force on 1 January 2014. It is a measure that both SMEs and self-employed workers have been demanding from the Spanish Government for some time. However, less than 1% of taxpayers have taken advantage of it to date.

Why has the cash basis for VAT not been successful?
A priori, the cash basis seemed like the perfect solution for those companies or self-employed people with liquidity problems.
The fact of not having to pay the VAT india number data charged to the Treasury until the invoices issued were collected gave an apparent margin of maneuver, since with the VAT money that did not need to be paid to the Tax Agency, the invoices received could be paid and the operations could continue as normal.
Basically, it could be said that adopting the cash basis of VAT was thought of as a way of solving the mismatch that some companies had between their collection and payment dates, in cases where the payment was in cash and the collection was one or more months in advance.
But finally, after 3 years since this tax regime came into force, very few companies have decided to adopt it. Among other reasons, because those that have done so have ended up being less competitive. Is it worth solving your cash flow problems at the expense of losing competitiveness?

The drawbacks of the cash basis
Reduces competitiveness
Using the cash basis for VAT can help solve the liquidity problem that many companies suffer from. But it also reduces their competitiveness. Why?
The point is that the cash basis allows you to postpone paying the VAT charged to the Treasury, but it also means that you cannot deduct the VAT charged until you pay the invoices to your suppliers.
The fact is that, although using this measure is optional, it not only affects the companies that do so, but also the taxpayers who operate directly with these companies. And this does not exactly benefit them.

For example: if your company has used the cash basis and your clients pay you in 3 months, you will not have to pay the VAT charged on all those invoices until you collect them. But in the same way, your client will not be able to deduct the VAT charged until they pay you, or until December 31 of the year following the invoice date.

Therefore, you benefit from having adopted the cash basis tax regime, but your clients who have not done so are also at a disadvantage, because they have to wait to make the payment in order to deduct the VAT incurred. And this throws their cash out of balance.
This is why adopting the cash basis reduces the competitiveness of SMEs and self-employed workers who apply it, because it is very likely that many companies will decide not to work with those who adopt this measure.