VAT on advance payment invoices prepare your software and your VAT accounting monitoring

Until now according to the French VAT law, in field of goods trade, no VAT is applied on advance payment invoices.

According to a recent French case of law from the appeal court of Nantes, this French provision doesn’t comply with the European directive of the 2006/112/CE

Therefore, the French legislator is planning a new bill stipulating that:

From January 2023:

VAT on advance payment invoices, will be due as soon as the corresponding payment is received

It will then no longer be possible to invoice the VAT only at the end of the goods delivery (closure invoice) as it is often the case now

For practical reasons it will be therefore necessary to apply VAT to these advance payment invoices:

This draft of law should be passed in 2022 at 99%

Consequences

  • VAT will be invoiced earlier
  • Theoretically: VAT invoiced with the down payment invoices, is due upon the corresponding payments:
  • This will require a close monitoring of the client down payments accounts (Number 419xxx in France)

Methods will have to be implemented:

  • For the advance payment invoices: Method of VAT liability according to the payments (TVA s/ les encaissements) obliging to monitor all the bank movements and to create sub accounts for the corresponding VAT balance (for ex. 44574190)
  • For the Closure invoices or invoices without advance payment: Method of VAT liability according to the Invoicing Date (TVA s/ les débits)

Recommendations

Theoretically, if that VAT is applied on the advance payment invoices, and paid back to the tax authorities only upon the payment by the client, no negative impact on the cash flow should occur.

Nevertheless practically the monitoring of 2 VAT monitoring methods as described above, should generate high hidden costs;

Thus, it is worth to think about the possibility to apply the same VAT liability method on the advances payment invoices and on the closure invoices, and declare and pay all the VAT upon invoicing;

Of course, it will lead to a low anticipation of the VAT payment by your firm, so a low impact on your cash flow:

  • 0,5<>1.5 months VAT declared and paid to the Tax administration
  • Whereas 2 months average recovery of the customers debts

But in return

  • It would be easier to declare with less risk of errors
  • Save time for your team
  • Simplify your VAT accounting monitoring

You have 12 months to think about the best solution for your firm, your cash flow but also your team!

Be ready with your invoicing Software.