If you’re a vat registered trader that has got to pay vat once you issue a vat invoice then you can go for vat cash accounting scheme to delay your vat payments. Under this scheme you will need to pay vat only after your customers have paid against your vat invoice.
Under regular vat accounting, you will have to pay vat during the next vat return irrespective of whether your client has cleared payment of your vat invoice vatvalidation. This is also true in case your business compels that you issue credit invoices most of the time. In such a case you would end up paying of the vat amounts even in case your client fails to make any payment at all. Thus, you’d find yourself paying vat even on the debt.
If you’re a trader in the UK then you could easily shift over to the cash accounting scheme in vat that is offered by HM Revenue and Customs department or hmrc vat department. You will however be eligible for a this scheme only when your estimated taxable sales within the next year aren’t more than ?1.35 million read this. You will also have to exit the scheme as soon as your taxable sales touch ?1.6 million. You could also have the ability to use the cash accounting scheme along with other vat schemes like the annual accounting scheme.
It is possible to shift over to this scheme even without informing the hmrc vat department provided you do so at the beginning of any vat accounting period. You will however have to separate these invoices from the earlier vat invoices that you’d have issued under the standard vat accounting scheme. There are many benefits and drawbacks while opting for the cash accounting scheme. The advantages are that when your customers pay out only after a few days, weeks or months you’ll need to cover vat only after receiving payments from those clients. It’s also possible to remain safe in the event any client doesn’t make payments.
The cons to this scheme are that you will have to keep specific payment records of most of your customers including providing additional evidence in the form of bank statements whenever required by hmrc. You will also have the ability to reclaim vat on any purchases only once you have paid your supplier. In case you decide to shift over to standard vat accounting then you will also have to take into account all pending vat amounts including any money owed. Additionally, you will be barred from using vat cash accounting scheme by hmrc in case you find yourself making mistakes in vat calculations, get convicted in a vat offence or get penalized for vat evasion. When you do leave the scheme you will have to take into account all pending vat over the following Six months.
If you are a vat registered trader that sells goods or services mainly on credit but buys them against cash bills then the cash accounting scheme could be well suited for you. You could possibly avoid paying vat on bad debts and might only have to pay vat when your clients pay out. However, you should seek advice from your vat agent and understand all pros and cons regarding the vat cash accounting scheme before you opt for this type of scheme.