How much to set aside for tax and quota from each payment

Terms used

• IVA — IVA is Spain's value-added tax, charged on your invoices and passed on to the tax agency, minus the IVA you paid on business costs.
• IRPF — IRPF is Spain's personal income tax, which freelancers prepay each quarter and settle in the annual return.
• Autónomo — An autónomo is a self-employed person registered to work for themselves in Spain.
• Quota — The quota is the monthly social security payment every autónomo makes, whether or not they earned that month.
• Gestor — A gestor is a tax adviser who prepares and files your returns.
• Criterio de caja — Criterio de caja is an optional VAT system where you owe VAT only when you are paid.

Key rules

• VAT timing: VAT is owed for the period when you issue the invoice or deliver the service, even if the client has not paid yet.
• Quarterly income tax: Each quarter you pay 20% of your cumulative net profit since 1 January, less earlier payments and withholdings.
• Quarterly deadlines: Quarterly returns are due 1-20 April, 1-20 July and 1-20 October, and in January by the 30th.
• Unpaid invoices: You can recover VAT on an unpaid invoice only after a waiting period, a formal claim and a corrective invoice.

The short version

Do not treat a payment as all yours. When money arrives, move the tax and VAT parts into a separate savings account straight away, then keep a small reserve, and only then spend. VAT and income tax are owed on what you invoice, not on what you collect.

Split each payment into four parts

1. VAT (IVA). If you charged VAT on the invoice, that amount is not your money. Set all of it aside. At filing time you subtract the VAT you paid on business expenses, so you may owe less, but start from the full amount.
2. Income tax (IRPF). Each quarter you pay 20% of your cumulative net profit since 1 January, less earlier payments and withholdings. Net profit is income minus deductible expenses. A simple habit is to set aside 20% of each payment's profit part. If your client withholds tax on your invoice, that withholding counts against what you owe, so you set aside less.
3. Reserve. Keep a cushion for your monthly autónomo quota and for slow-paying clients. The quota is taken every month whether or not you were paid.
4. Spend. What is left is yours to live on.

Your annual return (renta) can still leave a balance to pay or a refund, so a small extra margin in the tax pot is wise.

VAT is owed before the client pays

VAT is owed for the period when you issue the invoice or deliver the service, even if the client has not paid yet. An invoice issued in March and paid in May goes into your first-quarter VAT return. You may have to pay Hacienda out of your own pocket before you see the client's money.

The same applies to income tax: an unpaid invoice still counts as income in your quarterly 20% payment and your annual return. Withholding only happens when the client actually pays.

If you use a special system where VAT is due only when you collect (criterio de caja), the timing differs. Ask your gestor if that applies to you.

When to pay

Quarterly returns are due 1-20 April, 1-20 July and 1-20 October, and in January by the 30th. Paying by direct debit closes a few days earlier. If a date falls on a weekend or holiday, it moves to the next working day. The timeline below lists each filing.

If an invoice is never paid

You have two ways to get relief, and both are strict.

• Income tax. Once the debt is clearly uncollectible, you can deduct it as an expense. That is the case if the client is declared insolvent, or if 6 months have passed since the due date and you have claimed the debt by court or through a notary, or can otherwise prove it cannot be collected. Keep the evidence, because Hacienda will ask for it. If the client later pays, you must declare that income.

• VAT. You can recover the VAT by issuing a corrective invoice. You need these conditions:

  • At least 6 months have passed since the VAT was due, or one year if your turnover is under 6,010,121.04 euros.
  • The invoice is recorded in your books.
  • The client is not a related party or a public body.

  Issue the corrective invoice within 3 months after that waiting period ends. Send it to the client and to Hacienda electronically, within 1 month of issuing it.

Until all that is done, keep the VAT and tax on the unpaid invoice in your reserve rather than spending it. The sooner you chase a late client, the less cash you have to cover yourself.

Keep it routine

Move the tax and VAT parts at the same time every month and match them to your books. The monthly checklist below sets out the routine.

Timeline and deadlines

• File and pay the first-quarter income tax and VAT returns: 1-20 April

• File and pay the second-quarter returns: 1-20 July

• File and pay the third-quarter returns: 1-20 October

• File and pay the fourth-quarter returns: in January, by the 30th

• Submit your annual income tax return (renta): from early April to 30 June, with direct debit payment ending around 25 June

• Deduct an uncollectible invoice from your income: once the debtor is declared insolvent, or 6 months after the due date if you have claimed the debt by court or notary

• Issue a corrective invoice to recover VAT on an unpaid invoice: after 6 months from when the VAT fell due (1 year for businesses with turnover under 6,010,121.04 euros), and within 3 months after that period ends

Monthly money routine for a Spanish freelancer

Monthly money routine

• Issue every invoice for the month with the correct number and VAT, and chase any that are still unpaid.

• Collect every expense receipt and invoice, and check each one is in your name and deductible.

• Record all income and expenses in your income and expenses book and your VAT books.

• Match your books against the bank statement, keeping business and personal accounts separate.

• Compare the VAT you charged with the VAT you paid, including on invoices clients have not paid yet.

• Move your estimated income tax and VAT, plus any withholdings shown on your invoices, into a separate savings account.

• Check that your monthly autónomo quota is covered in your bank account before the last working day of the month.

• Send your documents to your gestor (tax adviser) before each quarter ends, and ask about withholding returns if you have any.

• Put the quarterly filing dates in your calendar: 1-20 April, 1-20 July, 1-20 October, and in January by the 30th.

Frequently asked questions

Do I pay income tax on an invoice my client has not paid?

Yes, you count the income when you deliver the service or issue the invoice, so it goes into your quarterly income tax payment even if the client has not paid. The client only withholds tax when it pays.

Can I get back the VAT on an invoice that is never paid?

Yes, you can recover the VAT by issuing a corrective invoice once the debt is uncollectible. You need to wait 6 months after the VAT fell due (1 year for businesses with turnover under 6,010,121.04 euros), have the invoice in your books, and have claimed the debt by court or notary. The debtor must not be a related party or public body.

How long do I have to issue the corrective invoice for unpaid VAT?

You must issue the corrective invoice within 3 months after the waiting period ends. Send it to the debtor, and send it to the tax agency electronically within 1 month of issuing it.

What if a filing deadline falls on a weekend or holiday?

If a filing deadline falls on a weekend or holiday, it moves to the next working day. Direct debit filing closes about five days earlier than the normal deadline, so file sooner if you pay that way.