How to handle payment issue on taxes

[booksnthings]

I have an irritating freelance issue and I want to make sure I handle it correctly on my end. In 2025, a client didn't pay one of my invoices in full, and after a lot of back and forth, agreed they needed to correct it, and then instead of paying me the difference owed, paid out the whole invoice in full. I let them know right away. They got back to me this year and instead of me transferring back the extra payment, told me they wanted to just take the balance out of my next invoices for them.

How do I go about declaring this correctly on my taxes? Should I go by the "Zuflussprinzip" and include the "extra" payment I received in 2025's declaration? Or, since that money is technically being applied to work I've now done in 2026, should I include it on 2026's taxes? I know it would be easiest to ask an accountant, but I usually do my own taxes, which are not typically this much of a headache. So if anyone has any insight into this, it would be most appreciated!

[Eric7]

There's a good chance that Panda will correct me, but...
...as a freelancer, the date of payment is relevant so the full amount paid would be declared in 2025.
You should have 2 invoices though IMO. One for the full amount and one for the reduced amount initially paid.
Or if they were paid with the same bank reference (Verwendungszweck) then one big invoice for the total amount paid.

If you were a GmbH, you declare the money as earned as soon as the invoice is sent.

[PandaMunich]

Should I go by the "Zuflussprinzip" and include the "extra" payment I received in 2025's declaration?

Yes.

[booksnthings]

Thank you, Eric7 and PandaMunich for responding. It really helps. I have one more question, if that's ok:

The incorrectly paid invoice was incorrect because it was missing the VAT. When they corrected it, they paid the whole thing, plus the VAT. I do an annual VAT declaration (other clients are mostly outside Germany, so I don't collect enough VAT for a quarterly or monthly filing to be required). Since the second round of payment made in 2025 is technically being applied to my current, 2026 invoices + VAT, how would I handle the VAT portion to make sure it's reported correctly between what was paid in 2025 and what is being invoiced for now? Sorry, this is really giving me a headache.

[PandaMunich]

If you always declare things as they really happened.

If, for example, the client paid 1,000€ of a 1,190€ invoice in 2025, then the 2025 net turnover is 1,000/1.19 = 840.34€ and the VAT on it 159.66€ (= 1,000€ - 840.34€).

If in 2026, they by mistake paid you 1,190€, then you have no choice but to report the reality, i.e. you have 1,000€ as 2026 net turnover and 190€ as 2026 VAT.

[booksnthings]

Thank you, Panda, this is incredibly helpful. So, essentially, what matters is when they paid and not when I did the work/invoiced for it.

Do these steps sound correct?

I will break down the incorrect payment from 2025 into my net and VAT using the X/1.19 formula. The corrected payment, also made in 2025, is simpler, as it is good to go on my 2025 tax return as is, since it includes both net and VAT.

I'm working for this same client now, but they are not currently paying me for any of this work, given the overpayment in 2025. Therefore, I do not need to pay VAT in 2026 on the non-paid 2026 invoices.

Once I've made it through the overpayment amount and the client resumes paying me, I will break down that likely partial payment according to the x/1.19 formula, and include that on my 2026 tax return.

I hope I have this right.

[PandaMunich]

Yes, correct on all counts.

[booksnthings]

Thank you for your help, Panda, it is so very appreciated.

[booksnthings]

Hi @Panda, I hope it's okay to revive this thread with another VAT-related question. Until 2025, I've never collected over 1000EUR in VAT, so I've only ever done annual VAT filings. In 2025, I went over that threshold, though was still under 2000EUR. I'm working on the filing now, alongside my tax return for the year. However, I'm now realizing I might have screwed something up — since I went over 1000EUR in VAT collected in 2025, should I have started doing quarterly VAT returns in 2026? For what it's worth, it currently looks like I'm going to be back under 1000EUR in VAT for this year.

But I am unsure if I should finish the 2025 VAT filing, and then really quickly do Q1 and Q2 2026, as well. And if so, should I also write to the Finanzamt and explain I'm an idiot? Or should I hold off on the 2026 VAT filing and write to the Finanzamt and explain that even though 2025 was higher, for 2026, I'm likely back under the 1000EUR threshold?

I feel really dumb for not thinking about this earlier. If anyone has any advice, I would so appreciate it. Thank you <3

[PandaMunich]

Until 2025, I've never collected over 1000EUR in VAT, so I've only ever done annual VAT filings. In 2025, I went over that threshold, though was still under 2000EUR.

The limit is 2,000€, not 1,000€, see § 18 (2) sentence 3 UStG: https://dejure.org/gesetze/UStG/18.html

--> continue doing yearly VAT returns.

[booksnthings]

That is the most welcome news. Thank you, Panda. I don't know why I had that 1000 figure in my head...maybe that's what it used to be. At any rate (har har), what a relief.

[PandaMunich]

I don't know why I had that 1000 figure in my head...maybe that's what it used to be.

Yes, the limit was 1,000€ up to 31.12.2024: https://www.buzer.de/gesetz/5509/al210286-0.htm