If you are 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 have to pay vat only after your clients have paid against your vat invoice.
Under regular vat accounting, you will need to pay vat during the next vat return regardless of whether your client has cleared payment of the vat invoice. This is also true in case your business compels that you issue credit invoices more often than not. In such a case you’d end up paying of the vat amounts even in case your client fails to make any payment at all. Thus, you would find yourself paying vat even on your debt belly dancing.
If you are a trader in the UK then you could easily shift to the cash accounting scheme in vat that is made available from HM Revenue and Customs department or hmrc vat department. You will however qualify for this scheme only if your estimated taxable sales within the next year aren’t more than ?1.35 million. You will also need to exit the scheme once your taxable sales touch ?1.6 million. You might also have the ability to make use of the cash accounting scheme with other vat schemes such as 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 may however need to separate these invoices from the earlier vat invoices that you would have issued in the standard vat accounting scheme. There are several benefits and drawbacks while choosing the cash accounting scheme. The advantages are that if your clients pay you only after a couple of days, weeks or months then you need to pay vat only after receiving payments from those clients. You can also remain safe in the event any client doesn’t make payments.
The cons to this particular scheme are that you will need to keep specific payment records of all 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 after you have paid your supplier. In case you decide to shift over to standard vat accounting then you will also have to account for all pending vat amounts including any bad debts. You will also be barred from using vat cash accounting scheme by hmrc in case you end up making mistakes in vat calculations, get convicted in a vat offence or get penalized for vat evasion. When you do leave the scheme then you will need to take into account all pending vat within the next Six months racing pigeon.
If you are a vat registered trader that sells services or goods mainly on credit but buys them against cash bills then the cash accounting scheme might be suitable for you. You could not pay vat on debt and might only have to pay vat when your clients pay you. However, you should check with your vat agent and understand all pros and cons regarding the vat cash accounting scheme before you go for such a scheme.
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