If you’re a vat registered trader that has got to pay vat as soon as 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 clients 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 vatvalidation. This is also true if your business compels that you issue credit invoices more often than not. In such a case you would find yourself paying the vat amounts in case your client fails to make any payment whatsoever. Thus, you’d end up paying vat even on the debt.
If you are a trader in the UK then you may easily shift 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 are not greater than ?1.35 million get more info. You will also have to exit the scheme as soon as your taxable sales touch ?1.6 million. You might also be able to use the cash accounting scheme with other vat schemes such as the annual accounting scheme.
It is possible to shift to this scheme even without informing the hmrc vat department provided you are doing so at the start of any vat accounting period. You may however have to separate these invoices from the earlier vat invoices that you would have issued under the standard vat accounting scheme. There are many benefits and drawbacks while choosing the cash accounting scheme. The pros are that if your customers pay you only after a few days, weeks or months you’ll need to pay vat only after receiving payments from those clients. It’s also possible to remain safe in case any client fails to make payments.
The cons to this scheme are that you will have to keep 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 after you have paid your supplier. In case you opt 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. Once you do leave the scheme then you will have to take into account all pending vat over the following 6 months.
If you’re 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 out. 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 opt for such a scheme.