If you’re a vat registered trader that has to pay vat as soon as you issue a vat invoice then you can certainly go for vat cash accounting scheme to delay your vat payments. Under this scheme you will have to pay vat only after your customers have paid against your vat invoice.
Under regular vat accounting, you will need to pay vat in the next vat return regardless of whether your client has cleared payment of your vat invoice. This is especially true in case your business compels that you issue credit invoices most of the time. In such a case www.vatcontrol.com 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 your debt.
If you are a trader in the UK then you could easily shift over to the cash accounting scheme in vat that’s offered by HM Revenue and Customs department or hmrc vat department. You will however be eligible for a this scheme only if your estimated taxable sales within the next year are not greater than ?1.35 million. Additionally, you will have to exit the scheme as soon as your taxable sales touch ?1.6 million. You could also have the ability to make use of the cash accounting scheme with other vat schemes such as the annual accounting scheme.
You can shift to this scheme even without informing the hmrc vat department provided you do so at the start of any vat accounting period. You will however need 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 pros are that if your customers pay you only after a couple of 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 particular scheme are that you will have to maintain specific payment records of all of your customers including providing additional evidence in the form of bank statements whenever required by hmrc. Additionally, you will be able to reclaim vat on any purchases only once you have paid your supplier. Just in case you opt to shift to standard vat accounting then you will also need to take into account all pending vat amounts including any money owed. 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 you will need to account for all pending vat within the next 6 months.
If you are a vat registered trader that sells services or goods mainly on credit but buys them against cash bills then this cash accounting scheme might be suitable for you. You could possibly not pay vat on debt and may only need to pay vat when your clients pay you. However, you need to check with your vat agent and understand all pros and cons regarding the vat cash accounting scheme before you decide to go for this type of scheme.