Worth Added Tax (VAT), below the money foundation accounting methodology, is computed and remitted solely when fee for items or companies is obtained. This contrasts with the accrual methodology, the place VAT is accounted for when the bill is issued, no matter when fee is collected. For instance, if a enterprise offers a service in January however would not obtain fee till March, the VAT is accounted for and paid in March.
This methodology presents vital money circulate benefits for companies, notably small and medium-sized enterprises (SMEs). Deferring the VAT fee till receipt of fee reduces the burden of fronting VAT on gross sales the place fee is delayed. Traditionally, this method was launched to alleviate monetary pressure on smaller companies which may battle with rapid VAT obligations on invoices issued however not but settled.
