If you’re a vat registered trader that has got 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 only have 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 vat validation. This is also true if your business compels that you issue credit invoices most of the time. 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 find yourself paying vat even on your debt.
If you are a trader in Britain then you could easily shift to the cash accounting scheme in vat that’s made available from HM Revenue and Customs department or hmrc vat department. You’ll however qualify for this scheme only if your estimated taxable sales in the next year are not greater than ?1.35 million helpful hints. You will also have to exit the scheme once your taxable sales touch ?1.6 million. You could also be able to make use of the cash accounting scheme along with other vat schemes like the annual accounting scheme.
You can shift over 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 your earlier vat invoices that you’d have issued under the standard vat accounting scheme. There are several pros and cons while opting for the cash accounting scheme. The pros are that if your customers pay you only after a few days, weeks or months then you need to pay vat only after receiving payments from those clients. It’s also possible to remain safe in the event any client fails to make payments.
The cons to this particular scheme are that you will have to maintain specific payment records of most 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. Just 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 bad debts. Additionally, you will be barred from using vat cash accounting scheme by hmrc if you happen to 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 have to take into account all pending vat within the next Six 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 avoid paying vat on bad debts and may only have to pay vat whenever your clients pay out. However, you need to 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.