If you are a vat registered trader that has to pay vat once 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 only have to pay vat only after your customers have paid against your vat invoice.
Under regular vat accounting, you will need to pay vat during the next vat return regardless of whether your client has cleared payment of the vat invoice. This is especially true in case your business compels that you issue credit invoices more often than not. In such a case you’d end up paying the vat amounts in case your client does not make any payment at all. Thus, you would end up paying vat even on the debt penny auctions.
If you’re a trader in the UK then you could easily shift over 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 within the next year aren’t more than ?1.35 million. Additionally, you will need to exit the scheme as soon as your taxable sales touch ?1.6 million. You could also have the ability to use the cash accounting scheme along with other vat schemes such as the annual accounting scheme.
You can shift over to this scheme even without informing the hmrc vat department provided you do so at the beginning of any vat accounting period. You will however need to separate these invoices from your earlier vat invoices that you’d have issued in the standard vat accounting scheme. There are many pros and cons while choosing the cash accounting scheme. The pros 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. You can also remain safe in case any client doesn’t make payments.
The cons to this scheme are that you will need to maintain 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 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 money owed. 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. Once you do leave the scheme then you will have to take into account all pending vat within the next Six months racing pigeon.
If you’re a vat registered trader that sells goods or services mainly on credit but buys them against cash bills then the cash accounting scheme could be well suited 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 such a scheme.
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