If you’re a vat registered trader that has got to pay vat once 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 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 your vat invoice. This is especially true if your business compels that you issue credit invoices more often than not. When this occurs you would find yourself paying the vat amounts in case your client fails to make any payment at all. Thus, you would find yourself paying vat even on your debt.
If you’re 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’ll however be eligible for a this scheme www.vatnumbers.com only if your estimated taxable sales within the next year aren’t greater 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 be able to use the cash accounting scheme along with other vat schemes like the annual accounting scheme.
You can 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 the earlier vat invoices that you’d 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 customers pay out 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 particular scheme are that you will have to keep specific payment records of most 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. Just in case you opt to shift to standard vat accounting then you’ll also need to take into account all pending vat amounts including any money owed. 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 have to take into account all pending vat over the following 6 months.
If you are a vat registered trader that sells goods or services mainly on credit but buys them against cash bills then this cash accounting scheme might be suitable for you. You could possibly avoid paying vat on debt and might only have to pay vat when your clients pay you. However, you need to check with your vat agent and understand all pros and cons about the vat cash accounting scheme before you go for such a scheme.