If you’re a vat registered trader that has to pay vat as soon as you issue a vat invoice then you can certainly opt 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 irrespective of whether your client has cleared payment of the vat invoice. This is also true in case your business compels that you vatnumbersearch 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 would find yourself paying vat even on your bad debts.
If you’re a trader in Britain then you may easily shift over 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 are not more than ?1.35 million. You will also need to exit the scheme once your taxable sales touch ?1.6 million. You could also have the ability to use 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 are doing 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 several 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 maintain specific payment records of all your clients 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 to standard vat accounting then you will also have 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 if you happen to 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 then you will have to account for all pending vat over the following 6 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 might be suitable for you. You could possibly avoid paying vat on debt and may only need to pay vat whenever your clients pay out. However, you should seek advice from your vat agent and understand all pros and cons about the vat cash accounting scheme before you opt for this type of scheme.