Tax & bookkeeping

VAT returns and simple bookkeeping: rhythm, reserve, profit

General information on the law in Germany (as of September 2026), not legal advice. Other countries regulate this differently.

Once you charge VAT you have to declare and pay it, and how often depends on one number only: the VAT you actually paid last year. Above 9,000 euros the period is the calendar month, between 2,000 and 9,000 euros the quarter, and at 2,000 euros or less the tax office may release you from advance returns altogether. Each return is due, with payment, on the 10th day after the period ends; a permanent extension moves that by a month and costs quarterly filers nothing at all. The money for it is not yours in the meantime, which is the practical core of this article: set the VAT aside on the day it arrives, together with the income tax on your profit. That profit is calculated by the cash-basis method as receipts minus payments, on the day the money moves rather than the day of the invoice, and it goes to the tax office electronically on a prescribed form by 31 July of the following year. Double-entry bookkeeping only becomes mandatory above 800,000 euros of turnover or 80,000 euros of profit, and only after the tax office says so.

The bank balance is not a statement about your business

The first month after leaving the small-business rule behind feels like a raise. The same customers pay the same work, and nineteen percent more arrives. Nothing about the business has changed, and nothing about your earnings has either: that additional amount is money you collected on behalf of the tax office, and you will hand it over, at the latest on the 10th day after the quarter ends.

That is one half of this article. The other half is its mirror image: your profit is not what the account says either, because purchases above 800 euros are deductible only in instalments, because the cash-basis method counts the day money moves rather than the day of the invoice, and because the income tax on that profit falls due long after the work that produced it. Both halves come down to the same sentence, and it is worth writing on a sticky note: the balance on your account is the least informative number you look at every day.

What follows is the rhythm you have to file in, the two dates that matter, a calculator for the amount to set aside, and the four peculiarities of the cash-basis method that everyone stumbles over once. None of it is complicated. All of it is expensive when it arrives unannounced.

Where the tax on the invoice comes from, and when the small-business exemption ends: writing invoices and VAT →

Monthly, quarterly, or not at all

One number decides this, and it is not your turnover. It is last year's liability: the VAT you charged minus the input tax on your own purchases, in other words what actually left your account towards the tax office. A business with 200,000 euros of turnover and large purchases can end up filing quarterly while a consultant with 80,000 euros and almost no costs files monthly.

Last year's liability decides

more than 9,000 euros

monthly

Twelve returns a year, each due on the 10th of the following month. The threshold rose from 7,500 to 9,000 euros on 1 January 2025, which is why older guides still quote the old figure.

2,000 to 9,000 euros

quarterly

Four returns a year, due on 10 April, 10 July, 10 October and 10 January. This is the default case and where most new businesses spend their first years.

2,000 euros or less

exemption possible

The tax office may waive advance returns entirely, leaving only the annual return. May, not must: this is the office's decision rather than your entitlement, and it does not apply in the year you start trading or the year after.

The threshold sits on the tax you paid, never on the turnover you made.

§ 18 Abs. 2 UStG, with the thresholds applying since 1 January 2025 (previously 7,500 and 1,000 euros). The exemption below 2,000 euros is at the tax office's discretion and never applies in your first two years of trading. General information on the law in Germany, not legal advice.

Four dates, one of them optional

Filing and paying are one act here, which is the part that catches people out: no bill arrives, and the money has to be there on the day you file. The third date is the one that keeps the whole year honest, and the fourth is a warning for anyone whose start is still ahead of them.

The calendar of the first year

10th day after the period

mandatory

File and pay in one move. The tax office sends no bill and no reminder; the return is your own calculation of what you owe. If the 10th falls on a weekend, the deadline moves to the next working day.

10 February

optional

Application for the permanent filing extension. It moves every deadline back by a full month, permanently, without annual renewal. Monthly filers pay a special advance of one eleventh of last year's payments, credited back in December. Quarterly filers pay nothing at all.

31 July of the following year

mandatory

Annual VAT return and income tax return with the profit statement attached. With a tax adviser the deadline normally extends to the end of February of the second following year. The annual return adds up all the advance returns and corrects them.

from 1 January 2027

watch this

The exemption for new businesses is currently set to end: the obligation to file monthly in the first two years is suspended for 2021 to 2026 only. Anyone starting in 2027 should plan for twelve returns instead of four, unless the suspension is extended again.

No bill arrives. The return is the bill, and you write it yourself.

§ 18 Abs. 1 UStG for the tenth day, §§ 46 to 48 UStDV for the permanent extension and the special advance, § 149 Abs. 2 AO for the annual deadlines. The suspension of monthly filing for new businesses rests on § 18 Abs. 2 Satz 6 UStG and currently runs to the end of 2026. General information on the law in Germany, not legal advice.

What is yours, and what is not

Put in what you expect to invoice this year, what you buy with input tax on it, and what you paid the tax office last year. The tool works out your filing rhythm from that last figure and, more usefully, the amount that should leave for a second account every month so that neither the quarterly return nor next year's income tax comes as news.

Your rhythm, and what to set aside

Five numbers, one rhythm, one standing order. The starting values are an example, not a recommendation. Nothing is stored or transmitted.

Net turnover expected this year

60.000 €

The VAT rate you charge

19 %

Deductible purchases, net, per year

12.000 €

VAT actually paid last year

3.000 €

Your personal income tax rate

30 %

How often you have to file

quarterly

Set aside every month

1.960 €

Last year's liability against 9,000 €

3.000 €

Above this line the period is the month, below it the quarter.

VAT to set aside, per month

760 €

VAT you charged minus input tax on your purchases. This was never your money.

Income tax to set aside, per month

1.200 €

On a profit of about 48.000 euros. It falls due much later, which is the trap.

Of every euro that arrives in your account, 32.9 percent is not yours. On an expected 71.400 euros gross for the year that is 23.520 €, made up of 9.120 euros of VAT and 14.400 euros of income tax. The account balance will never tell you this, which is why the second account exists.

The rhythm follows last year's liability alone, never your turnover: above 9.000 euros monthly, between 2.000 and 9.000 quarterly, at or below 2.000 the tax office may waive advance returns entirely. In your first year there is no previous year, so the office works from the figure you estimated on the tax registration questionnaire.

Your next step

Last year's liability of 3.000 euros puts you between 2.000 and 9.000, so you file quarterly: 10 April, 10 July, 10 October, 10 January. The permanent extension is available to you as well and, unlike for monthly filers, without any advance payment, so there is no reason not to apply. Put 1.960 euros aside every month regardless, because a quarterly rhythm means three months of money accumulating that looks like yours.

The model is deliberately plain: output tax at the rate you set, input tax on purchases at the standard rate of 19 percent, since that covers the great majority of business purchases, and the difference as the liability. Depreciation over several years is not modelled, so anyone with large acquisitions will find the figure too high, which is the safe direction. Trade tax, the solidarity surcharge and the income tax prepayments the office will set after your first return are not included at all; the personal tax rate is a slider rather than a calculation, because it depends on all your household's other income. For binding figures, ask a tax adviser.

The cash-basis method: money in, money out, difference

Almost every new business starts with the simplest form of profit calculation there is: what came in, minus what went out, over the calendar year. No balance sheet, no inventory, no opening and closing entries. You may use it as long as you are not required to keep books, which for a trader means staying below 800,000 euros of turnover and 80,000 euros of profit, and which for the liberal professions has no size limit at all.

That simplicity is real, and it is also why four of its rules surprise people. Each of them is worth knowing before the first December rather than after the first assessment.

The day the money moves counts, not the day of the invoice.

An invoice dated 20 December but paid in January belongs to the new year. This is the only real lever the cash-basis method offers on your tax bill, and it is entirely legal: if December is heading above the line, bring purchases forward or hold an invoice back. Regularly recurring amounts have a ten-day exception around the turn of the year that has caught out plenty of people.

VAT runs through your profit statement at gross value.

VAT you collect from customers is business income; input tax you pay and the transfer to the tax office are business expenses. Over the years it cancels out, within a single year it does not: a payment that only leaves in January shifts profit into the previous year. That is why a cash-basis profit rarely matches the figure you had in your head.

Purchases above 800 euros net do not count all at once.

Up to 800 euros net the whole amount is deductible in the year of purchase. Above that it is spread over the asset's useful life, so a 1,400 euro laptop over three years. The money is gone, the deduction arrives in instalments, and that gap causes most of the cash surprises in year one. The rise to 1,000 euros discussed in 2023 never became law.

The statement goes to the tax office electronically, on a fixed form.

The profit statement has to be transmitted electronically on a prescribed form with fixed lines for fixed categories. That settles the question of tooling: a spreadsheet is fine for collecting, but filing needs software that produces the form. Sort into the form's categories from day one and you save yourself sorting a whole year in July.

§ 4 Abs. 3 EStG for the method, § 141 AO for the thresholds (800,000 and 80,000 euros since the 2024 financial year; the obligation starts only after the tax office notifies you), § 11 EStG for the timing rule and its ten-day exception, § 9b EStG for the treatment of VAT, § 6 Abs. 2 EStG for the 800 euro limit on immediate deduction, § 60 Abs. 4 EStDV for the electronic form. General information on the law in Germany, not legal advice.

The point at which the idea pays for itself, with the tax reserve taken out of the picture: break-even, with a calculator →

Ten minutes a month is enough

Book a recurring appointment on the first working day of the month and do three things in it. Match the bank statement against your receipts and chase whatever is missing while the supplier still remembers. Move the reserve to the second account, in one transfer, for the month just ended. Sort the month's documents into the categories the profit statement asks for, which takes minutes now and hours in July.

That is the whole system, and it is worth more than any software decision. The tooling question answers itself once the habit exists: you need something that produces the electronic profit statement and the VAT return, and something that keeps each document unalterable for the eight years it has to survive. Everything beyond that is preference.

Five mistakes, all of them about the same thing

Every one of them comes from treating a number as an answer when it is only a balance. The first two cost money directly, the last three cost a weekend and a quarter of unpleasant surprise.

Mistaking the VAT you collected for revenue. It sits in your account, it is part of the balance, and it was never yours. At the standard rate almost 16 percent of every gross receipt belongs to the tax office. People who notice this at their first return have usually spent it.

Waiting for the tax office to remind you. There is no reminder. The return is a self-assessment, and failing to file produces an estimate that is reliably higher than the truth, plus a late-filing penalty and, on late payment, a surcharge of one percent for every month started.

Not applying for the permanent extension because it sounds like work. For quarterly filers it costs nothing and buys a full month of air, permanently, with no annual renewal. It is the cheapest single move in this entire field.

Reading your profit off the bank balance. That balance contains this quarter's VAT, the money for last year's income tax, and the part of your purchases that is not yet deductible at all. The account balance is the least informative number a founder looks at every day.

Sorting it all out in July. The profit statement demands fixed categories, and twelve months later receipts can only be guessed at. Ten minutes a month matching statement to receipts replaces a lost weekend and a bad conscience.

Frequently asked questions

Does a small business under § 19 have to file advance VAT returns?

No. Anyone applying the small-business rule charges no VAT and therefore declares none. Since 2025 small businesses are generally spared the annual VAT return as well. None of that touches the income tax return with its profit statement: the profit has to be determined and declared whether VAT was involved or not.

How do I know whether I file monthly or quarterly?

From last year's liability, meaning the tax actually payable after deducting input tax. Above 9,000 euros the period is the month, below it the quarter, and at 2,000 euros or less the tax office may waive returns entirely. Turnover plays no part in this. In your first year there is no previous year, so the office works from the figure you estimated on the tax registration questionnaire and tells you the rhythm.

Do new businesses have to file monthly again?

Not in 2026. The obligation to file monthly in the first two years is suspended for the assessment periods 2021 to 2026, and during that time the normal rule applies to new businesses too. As things stand it returns from 2027 unless the legislature extends the suspension again. Anyone planning now but starting in 2027 should budget for twelve returns.

What does the permanent filing extension cost?

For quarterly filers, nothing. Monthly filers must declare and pay a special advance of one eleventh of the previous year's payments by 10 February, which is credited back in the December return. So it is not an extra charge but a deposit tied up for a year. The application is permanent and does not have to be repeated annually.

When do I have to move from cash-basis accounting to double-entry books?

As a trader, when turnover exceeds 800,000 euros or profit exceeds 80,000 euros in a year. The obligation does not start automatically on crossing the line but with the financial year following the tax office's notification, so it cannot surprise you retrospectively. Members of the liberal professions may always use the cash-basis method regardless of size, as may anyone not registered as a merchant who stays below the thresholds.

How much should I set aside each month?

The VAT liability plus the income tax on your profit, moved to a second account on the day the money arrives. What that share comes to depends on your tax rate, your expenses and your other income; the calculator in this article gives a working figure. For the binding number, especially the size of your income tax prepayments, a tax adviser is the right address. The office sets those prepayments after your first return, and they often land for two years at once.