If you’re a vat registered trader that has to pay vat as soon as 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 have to pay vat only after your customers 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 the vat invoice vatvalidation. This is also true in case your business compels that you issue credit invoices more often than not. When this occurs you would find yourself paying the vat amounts even in case your client fails to make any payment whatsoever. Thus, you would end up paying vat even on your bad debts.
If you’re a trader in Britain then you may easily shift to the cash accounting scheme in vat that’s made available from HM Revenue and Customs department or hmrc vat department. You will however qualify for this scheme only when your estimated taxable sales in the next year are not greater than ?1.35 million source. Additionally, you will need to exit the scheme as soon as your taxable sales touch ?1.6 million. You might also have the ability to make use of the cash accounting scheme 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 are doing so at the start of any vat accounting period. You may however have to separate these invoices from your earlier vat invoices that you would have issued under the standard vat accounting scheme. There are many pros and cons while opting for the cash accounting scheme. The pros are that when your customers pay out only after a few days, weeks or months you’ll need to pay vat only after receiving payments from those clients. It’s also possible to remain safe in case any client doesn’t make payments.
The cons to this particular 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. Additionally, you will have the ability to reclaim vat on any purchases only after you have paid your supplier. 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 money owed. You will also 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. When you do leave the scheme then you will have to account for all pending vat within the next 6 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 could be suitable for you. You could possibly not pay vat on debt and may only need to pay vat whenever your clients pay out. However, you need to seek advice from your vat agent and understand all advantages and disadvantages regarding the vat cash accounting scheme before you decide to go for this type of scheme.