The Swedish Government has proposed to extend the possibilities of applying cash accounting for VAT purposes (prop. 2009/10:235).

Broadly, cash accounting means that a trader only pays VAT on sales when their customers pay, instead of paying VAT on invoices which they have issued. Similarly, a trader's right of deduction of input VAT arises when they have paid their suppliers.

Currently, cash accounting is available for businesses which are not obliged to make an annual report according to Swedish book-keeping legislation and whose annual turnover does not exceed SEK 3 million (approximately EUR 300,000). This means that, in principle, only sole traders qualify for the application of cash accounting today. Companies such as companies limited by shares can apply cash accounting only if there is a limited number of invoices in the business and the amount on those invoices is not considerable.

According to the Government's proposal, the requirement for making an annual report will be dropped, which should mean that cash accounting can be applied by a wider group of companies. Cash accounting will, however, not be allowed for companies in the financial sector.

The proposed VAT rules are linked to proposed changes in Swedish book-keeping legislation according to which the use of a cash method in accountancy will be extended. The new rules will apply as from 1 January 2011.