A shop owner once told me her bank balance was 38,000 euros and she was thinking about a new delivery van. Sales had been strong that month, 30,000 euros before tax. I asked her one question: how much of that 38,000 is VAT you have already collected but not yet paid. She did not know. Nobody had asked her that before.
Here is the arithmetic she had not done. At 23 percent, 30,000 euros of sales carries about 5,600 euros of VAT that belongs to the state, not to her. That VAT sat in her bank account for weeks, looking exactly like the rest of her cash, spendable in every way a euro is spendable, right up until the day it has to leave. Her real cash, the part she can plan a van purchase around, was closer to 32,400 euros. Not 38,000. The difference is not small and it is not hers.
This is the part that catches small companies out. VAT is a pass through. You collect it from your customer on every invoice, you hold it for a while, and then you hand it to the AT or the AEAT on a schedule that has nothing to do with your own cash needs. Between the sale and the payment, the money sits in your account looking like profit. It is not profit. It is not even yours. It is a liability with a due date, and the due date does not move because you had a slow month or bought a van.
The habit that fixes this
The fix is not complicated, and it does not need new software. It needs one number, checked weekly, and ideally one account, separate from the operating one.
Every week, or every time you issue a batch of invoices, work out the VAT share of what you sold. If you are on a simple regime with one rate, this is a multiplication. If you deal in several rates, mainland Portugal has 23, 13 and 6 percent depending on the good or service, and Spain has 21, 10 and 4, so the figure takes a bit more care. Your contabilista certificado or your asesor knows which rate applies to which line of your business, and they should confirm it rather than you guessing from memory.
Once you have the figure, move it. Physically, to a second account that you do not touch for payroll or suppliers or rent. If moving money every week feels like too much friction, the minimum version of this habit is to write the VAT owed figure somewhere you look at often, a note on the same screen as your bank balance, so that every time you check what you have, you also see what is already spoken for.
What it looks like when this habit is missing
The company that skips this finds out on the payment date. The VAT return is filed, the amount due is confirmed, and the bank balance that looked comfortable a week ago is suddenly not enough, because payroll went out, a supplier got paid early, and the van deposit was put down. Now the choice is a scramble: delay a supplier, ask for a short term facility, or miss the payment and deal with the AT's interest and any penalty that follows, a conversation your accountant is far better placed to guide than we are here.
None of this is about the total amount of VAT you owe. It is about timing. A company that does 200,000 euros a year and sets aside its VAT weekly never has a bad surprise. A company that does half that and does not, sometimes does. The size of the business is not the risk. The habit is.
Worked example, once more, slowly
Sales in the month: 30,000 euros before tax, all at the standard rate. VAT collected: about 5,600 euros. Bank balance at month end: 38,000 euros. Of that, 5,600 is not the company's to plan with. Usable cash: 32,400 euros. If the company has a payroll of 9,000 and a rent payment of 2,000 due before the VAT return is filed, the real cushion after those is 21,400, not 27,000. That is the number a decision about a van, a hire, or a discount to a customer should be measured against.
What we don't know
We don't know which VAT regime applies to your business, whether you are on a simplified scheme, a quarterly or monthly filing, or a special arrangement for a particular sector. We don't know the exact rate for every line of goods or services you sell, especially where Portugal and Spain diverge. Check the current date, rate and regime with your accountant before you act on any of this.
This is the kind of thing that runs quietly once someone sets it up. Cifrova Business reads the VAT already invoiced from your own bank and invoicing data and shows you the figure every week, so the habit does not depend on someone remembering to do the arithmetic. A person still says yes to what happens with the money. If you want to see it against your own numbers, you can book a demo.
FAQ
Is VAT owed the same as the VAT rate I charge customers? No. The rate is what you charge on each invoice. VAT owed is the net amount you must pay after subtracting VAT you paid on your own purchases, so the figure to set aside is usually smaller than the raw amount collected, and only your accountant can confirm the net figure for a given period.
Should I open a separate bank account just for VAT? Many small companies find it easier to hold the money if it is out of sight in a second account, but it is not required. What matters is that you know the figure weekly and do not treat it as spendable cash. Ask your accountant or asesor what fits your setup.
Does this work the same way in Portugal and Spain? The principle is identical, VAT collected is a liability, not income, but the rates, the filing calendar and the regimes differ. Portugal's mainland rates are 23, 13 and 6 percent, Spain's are 21, 10 and 4, and filing frequency depends on your regime in each country. Check the current thresholds and dates with your accountant.