If you are 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 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 you to vatnumbersearch.com issue credit invoices most of the time. In such a case you would end up paying the vat amounts in case your client fails to make any payment at all. Thus, you’d end up paying vat even on the debt.
If you’re 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’ll however be eligible for a this scheme only when your estimated taxable sales within the next year are not greater than ?1.35 million. Additionally, you will need to exit the scheme once your taxable sales touch ?1.6 million. You might also have the ability 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 beginning of any vat accounting period. You will however have to separate these invoices from your earlier vat invoices that you’d have issued in the standard vat accounting scheme. There are many benefits and drawbacks while opting for the cash accounting scheme. The pros are that if your customers pay you only after a couple of 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 doesn’t make payments.
The cons to this scheme are that you will have to keep specific payment records of all 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 after you have paid your supplier. In case you decide to shift over to standard vat accounting then you’ll also need to account for 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 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 need to account for 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 well suited for you. You could possibly avoid paying vat on debt and might only need to pay vat whenever your clients pay you. However, you need to seek advice from your vat agent and understand all advantages and disadvantages regarding the vat cash accounting scheme before you go for such a scheme.