If you’re a vat registered trader that has got to pay vat as soon as you issue a vat invoice then you can opt 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 have to pay vat during the next vat return irrespective of whether your client has cleared payment of your vat invoice. This is also true if your business compels that you issue credit invoices vatvalidation.com/vat most of the time. When this occurs you’d end up paying the vat amounts in case your client fails to make any payment whatsoever. Thus, you would find yourself paying vat even on your bad debts.
If you are a trader in Britain then you may 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. You will also need to exit the scheme as soon as your taxable sales touch ?1.6 million. You could also be able to use the cash accounting scheme along with other vat schemes like 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 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 when your customers pay out only after a couple of days, weeks or months then you need to cover vat only after receiving payments from those clients. You can also remain safe in the event any client fails to make payments.
The cons to this scheme are that you will have 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 be able 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 then you will have to account for all pending vat within the next Six months.
If you’re 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 well suited for you. You could possibly avoid paying 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 about the vat cash accounting scheme before you go for this type of scheme.