VAT reporting during the Corona crisis

The Swedish Tax Agency has announced that a company, due to the Corona crisis, may have an opportunity to change how it reports VAT. This means that a company can change its accounting method or accounting period in order to temporarily strengthen its liquidity.

The economic effects of the Coronavirus, Covid-19, are among other things that several companies have ended up in difficult liquidity situations for reasons that they cannot affect. This could be due to the fact that their own business has halted or because the customers have difficulties paying their invoices on time. Several companies have therefore encountered payment difficulties, leading to the consequence of not being able to pay their VAT on time. The Swedish Tax Agency's announcement means that the authority makes it easier for companies that wish to change their accounting method or accounting period.

Accounting methods

There are two accounting methods when it comes to VAT reporting

1. the accrual method (which most companies use)
2. the annual accounting method.

When applying the accrual method the VAT is reported in accordance with generally accepted accounting principles, i.e. the VAT is either reported when invoices are issued and received or when delivery takes place. When applying the annual accounting method the VAT is, during the ongoing year, reported when payments take place. A requirement for reporting VAT in accordance with the annual accounting method is that the annual sales amount to a maximum of SEK three million. In order for a company to change its accounting method to the annual accounting method there has to be special reasons. The Swedish tax Agency finds that the Corona crisis is such an extraordinary circumstance that may lead to an approval of change of accounting method. However, it is important that the VAT, in the event of a change, neither is reported two times or is un-reported.

Accounting periods

A company can report VAT monthly, quarterly or annually. A company with more than SEK 40 million can only report VAT monthly, and no later than the 26th of the month after the transactions have taken place. The main rule for companies with sales which amount to less than SEK 40 million is to report VAT on a quarterly basis, however it is also possible to report VAT on a monthly basis. In that case the VAT report has to be reported no later than the 12th of the second month after the transactions have taken place. Companies with annual sales that amount up to SEK one million reports VAT on an annual basis. When a company reports VAT annually, it is reported when the income tax return is submitted or, if there has been EU trade, no later than the 26th of the second month after the end of the tax year.

Normally, an extension of the accounting period can only be made if certain conditions are met. The Swedish Tax Agency’s announcement means that small and medium-sized enterprises can and may change their accounting period and thus postpone future payments of VAT without having to meet the normal requisites to change. It is of great importance to ensure that companies that change their accounting periods do not get overlapping periods that could lead to VAT being reported either twice or not at all.

Possible changes

• Companies with an estimated yearly turnover up to SEK 3 million – consider to change the accounting method from the accrual method to the annual accounting method.
• Companies with an estimated yearly turnover up to SEK 1 million – consider to change the reporting period to annually reporting.
• Companies with an estimated yearly turnover up to SEK 40 million, which reports VAT monthly – consider to change the reporting period to quarterly reporting.

Comments

We appreciate the Swedish Tax Agency’s initiative to somehow help companies during these difficult times. We recommend that companies make a forecast of how the annual turnover will be affected this year and an assessment of whether it is possible to make any change of the VAT reporting. A changed accounting method, maybe in combination with an extended accounting period, would certainly be of great help to a lot of companies that are suffering difficulties with managing their payments.

For the larger companies or companies that already report VAT on a quarterly basis, but do not meet the requirements for reporting VAT on an annual basis or change to the annual accounting method, the Swedish Tax Agency’s announcement does not have an effect. On the other hand, the possibility of adjusting the preliminary tax and applying for deferral with the tax payments is available for such companies to apply for. The deferral can be applied for according to general rules (due to special circumstances) or according to the special rules which were introduced due to Covid-19. The latter solely apply to VAT, social security fees and preliminary tax on wages, while the general deferral rules may include other taxes as well.

Feel free to contact your consultant at PwC to discuss your company’s opportunities.

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