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 only have to pay vat only after your customers 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 the vat invoice. This is also true if your business compels you to vatnumbersearch issue credit invoices more often than not. In such a case you would find yourself paying of the vat amounts in case your client does not make any payment at all. Thus, you’d find yourself paying vat even on the bad debts.
If you’re a trader in the UK then you could easily shift to the cash accounting scheme in vat that’s 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. You will also need 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 with other vat schemes such as the annual accounting scheme.
It is possible to 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 need to separate these invoices from your earlier vat invoices that you would have issued under the standard vat accounting scheme. There are several benefits and drawbacks while opting for the cash accounting scheme. The advantages are that if 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 fails to make payments.
The cons to this scheme are that you will need to keep specific payment records of most of your customers 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. Just in case you opt to shift to standard vat accounting then you will also have 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 if you happen to end up making mistakes in vat calculations, get convicted in a vat offence or get penalized for vat evasion. When you do leave the scheme you will have to take into account all pending vat within the next Six months.
If you are 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 possibly not pay vat on bad debts 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.