Accrual and cash in one sentence each
With accrual accounting you owe VAT for the period in which you delivered, whether or not your customer has paid. With cash accounting you owe it for the period in which the money reaches you. Accrual accounting is the legal default (§ 13 Abs. 1 Nr. 1 Buchst. a UStG). You only get cash accounting if the tax office permits it on application (§ 20 UStG).
An example
You deliver a project in March and invoice €5,000 net plus €950 VAT. Your customer pays on May 20. You file your VAT return monthly.
| Question | Accrual accounting | Cash accounting |
|---|---|---|
| VAT arises | at the end of March | at the end of May |
| In the VAT return for | March, due April 10 | May, due June 10 |
| Who advances the €950 | you, from April 10 to May 20 | nobody |
With accrual accounting you pay the €950 to the tax office before your customer has sent you a cent. If they never pay, you only get the VAT back once the claim is uncollectible (§ 17 Abs. 2 Nr. 1 UStG). With cash accounting that question does not arise. That is exactly why many self-employed people find it the more comfortable method. If you file quarterly, the VAT in the example moves from the first to the second quarter.
Who gets cash accounting
Under § 20 Satz 1 UStG, the tax office may permit it if one of these conditions is met:
- Your total turnover in the prior year was at most €800,000 (Nr. 1). The limit has applied since 2024; before, it was €600,000.
- You are exempt from the duty to keep books under § 148 AO (Nr. 2).
- You work as a freelancer in the sense of § 18 Abs. 1 Nr. 1 EStG and are not required to keep books (Nr. 3). Then no turnover limit applies to you. If you keep books voluntarily, this option does not apply under the case law of the Federal Fiscal Court.
One condition is enough. Whether you count as a freelancer or a trade is explained in the guide freelancer or trade.
How to apply
The easiest way is right at registration: the tax registration questionnaire has a question for it. You can also apply later with a short informal letter to the tax office. Cash accounting only takes effect once the tax office permits it. Keep the confirmation.
If your turnover later exceeds the limit and you are not a freelancer, the permission can end for the following years. Clarify this in good time with your tax advisor or the tax office.
What changes in the VAT return
In the VAT return under cash accounting you report only the sales for which money came in during that period. The form fields stay the same. What shifts is the timing.
If your customer pays in installments or only part of the amount, you pay VAT on each amount in the period it arrives. For cash accounting you therefore need reliable payment data: every payment received must be matched to the right invoice, otherwise the VAT return is off.
At year end this means: December invoices paid only in January are taxed in the new year. They do not appear in the annual VAT return for the old year.
Advance payments
For advance payments there is no difference. If you receive money before you deliver, VAT arises at the end of the period in which it arrives, under accrual accounting too (§ 13 Abs. 1 Nr. 1 Buchst. a Satz 4 UStG). In the final invoice you deduct the advance payments already taxed. The guide on partial and final invoices shows how.
Input tax
Cash accounting affects only your sales. You still deduct input tax on your own receipts once the service has been performed and a proper invoice is there (§ 15 Abs. 1 UStG), even if you have not paid yet. For an advance payment you need both the invoice and the payment.
What changes from 2028
The Annual Tax Act 2024 (Jahressteuergesetz 2024) changes input tax deduction for the customers of cash accounting businesses. For invoices issued after December 31, 2027, a business may deduct input tax from the invoice of a cash accounting business only once it has paid (§ 15 Abs. 1 Satz 1 Nr. 1 UStG as amended). So customers can tell, invoices must then state that cash accounting applies (new § 14 Abs. 4 Satz 1 Nr. 6a UStG). You still calculate your own VAT by payment received. What is new for you is only the note on your invoices.
This guide explains the rules in general and is not tax advice. Whether cash accounting suits you depends on your customers and your figures.
Common questions
Is cash accounting always worth it?
For most self-employed people, yes, because you do not advance tax on money you do not have yet. It makes less difference if your customers pay right away anyway or you work mostly with advance payments.
Does it apply under the small business rule?
Under the small business rule you charge no VAT, so the method does not matter. It becomes relevant as soon as you switch to regular taxation. Then it is best to choose it at the same time.
Does cash accounting have anything to do with the EÜR?
Not directly. The EÜR counts income when the money flows anyway (§ 11 EStG). Cash accounting concerns only VAT. The two fit well together, though, because VAT and profit then follow the same moment.
Can I go back to accrual accounting?
Yes, you can give up the permission. When switching, make sure no sale is taxed twice or not at all. That is best settled with your tax advisor.