PAYMENT IN ADVANCE

 

It is very common in the translation area to request to the client payment in advance for the service that we offer (translation, interpretation, localization, etc), but do we have to issue an invoice for the money we received?

 

I) PAYMENT IN ADVANCE, YES OR NO?

The payment in advance is the money we received from a client before finishing the sale or service, and the regulation is clear:

When you receive a payment in advance, you have to issue an invoice with the detailed TAX, that must be present in the next financial report, not on the date of the final invoice.

 

Link: Obligación de facturar - Agencia Tributaria

Regarding the payment in advance, Law 37/1992 about TAXES, in article 75, section two, regulates the payments in advance and establishes: therefore, you have to register the tax in the pertinent date term you got paid, not in the dating term of the final invoice.

• According to article 164:

Link: BOE.es - BOE-A-2016-11575 Real Decreto 596/2016

• - And according to the regulations published in the BOE (Spanish Official Journal), Art. 2 (Royal Order 1619/2012, November 30th) that regulates the invoicing obligations, https://www.boe.es/eli/es/rd/2012/11/30/1619/con, we found the following:

Link: BOE.es - BOE-A-2012-14696 Real Decreto 1619/2012

 

Many professionals or entrepreneurs sometimes do not register the TAX when they receive payment in advance because they do not know about this. They think that it is a providing fund and that they can issue the invoice when the order finishes.

Not entering the TAX in the payments in advance from the client is not right, but it is usual. This happens because they think it´s ok and that they can issue the invoice when the final sale invoice is done.

The payment in advance is the money you receive before a future sale or service is produced. This payment will be deducted from the final price at the moment that the sale or service is finished.

They payment in advance must be registered through the invoice. It is not enough to register it in a receipt, delivery note or pro-forma invoice. The document must be the invoice with its pertinent tax, and with the ¨payment in advance¨ detailed.

Therefore, when you receive a payment in advance, an invoice must be issued with the TAX. This must be registered in the pertinent date term you got paid, not in the dating term of the final invoice. When the sale is done, you have to deduct the payments in advance you received, and only the TAX has to be registered.

 

II) WHEN DO WE NOT HAVE TO ISSUE AN INVOICE FOR THE PAYMENT IN ADVANCE FROM A CLIENT? 

As we mentioned before, Article 2.1 of the Invoice Regulation establishes when it is mandatory to issue an invoice of the payments in advance as follows:

¨ You must issue an invoice and its pertinent copy for the payments in advance regarding the delivery of goods and services. This is mandatory as it is established in the aforementioned paragraph, except for the delivery of goods and services free of tax on the Added Value according to article 25 of the Tax Law. ¨

Therefore, it is not mandatory to issue an invoice for the payments in advance in case of ¨INTRA-COMMUNITIES SUPPLIES¨

III) MODEL 347. ANNUAL STATEMENT OF TRANSACTIONS WITH THIRD PARTIES

On the other hand, you have to consider that in model 347 or the annual statement of transactions with third parties, the information is detailed per terms. If the payment in advance and the transaction are in different terms, it could produce inconsistency between the debtor and the creditor statement.

Remember: Model 347 includes transactions with third parties that have exceeded 3.005,06 € (tax included) during the natural year to which the statement refers.

Therefore, if you are in this situation, we recommend you to include the TAX of the payments in advance at the moment you get paid, and not in the statement corresponding to the date of the invoice. This is to avoid a possible penalty for entering the TAX out of time and for presenting the statement of transactions with third parties wrongly.

If the payment in advance is done in a term, and the last transaction in another term, it is possible that our statement (wrongly made) does not match with the information that our client sends to the Internal Revenue Service, and the ¨alarms go off¨. If they detect that, we will have to face two possible penalties. One of them is because you entered the TAX in the wrong term (incomes out of time), and the other is because you wrongly presented model 347.

 

In any case, we will avoid a lot of mistakes and problems regarding the issue of credit notes with the proper procedure, professionalism, and invoicing solutions that Gespoint Translator offers.

¿Do you want to know how Gespoint Translator solves this situation? Contact us!