If you are 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 only have to pay vat only after your clients have paid against your vat invoice.
Under regular vat accounting, you will have 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 vatnumbersearch issue credit invoices more often than not. When this occurs you would end up paying the vat amounts in case your client fails to make any payment at all. Thus, you would end up paying vat even on the bad debts.
If you’re a trader in the UK then you may easily shift to the cash accounting scheme in vat that is made available from HM Revenue and Customs department or hmrc vat department. You’ll however be eligible for a this scheme only when your estimated taxable sales in the next year aren’t more than ?1.35 million. You will also have to exit the scheme as soon as your taxable sales touch ?1.6 million. You might also have the ability to use the cash accounting scheme along 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 do so at the beginning 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 several pros and cons while choosing the cash accounting scheme. The advantages are that when your customers pay you only after a few days, weeks or months then you need to cover 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 particular scheme are that you will have to keep specific payment records of most your clients 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. Just in case you decide to shift to standard vat accounting then you’ll also need to take into account all pending vat amounts including any bad debts. 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 then you will need to take into account 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 this cash accounting scheme could be suitable for you. You could possibly avoid paying vat on bad debts and may only need to pay vat when your clients pay out. However, you should 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.