You can choose vat cash accounting scheme to delay your vat payments

If you are a vat registered trader that has got to pay vat once you issue a vat invoice then you can opt for vat cash accounting scheme to delay your vat payments. Under this scheme you will have to pay vat only after your customers 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 your vat invoice. This is especially true in case your business compels you to issue credit invoices more often than not. In such a case you’d find yourself paying of the vat amounts in case your client does not make any payment whatsoever. Thus, you’d find yourself paying vat even on the debt.

If you are a trader in Britain 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 vatnumbers only when your estimated taxable sales within the next year are not 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 make use of the cash accounting scheme along with other vat schemes like 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 start of any vat accounting period. You will however need to separate these invoices from your 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 clients pay you only after a couple of days, weeks or months you’ll 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 scheme are that you will have to maintain specific payment records of most 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 once you have paid your supplier. Just in case you decide to shift to standard vat accounting then you will also have to account for all pending vat amounts including any bad debts. 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. Once you do leave the scheme you will need to take into account all pending vat over the following 6 months.

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 might be well suited for you. You could not pay vat on bad debts and might only need to pay vat when your clients pay out. However, you should check with your vat agent and understand all pros and cons about the vat cash accounting scheme before you go for such a scheme.