If you’re a vat registered trader that has got to pay vat as soon as you issue a vat invoice then you can go 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 your vat invoice vatvalidation. This is also true in case your business compels you to issue credit invoices most of the time. In such a case you would end up 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 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 only if your estimated taxable sales in the next year aren’t more than ?1.35 million continue. You will also have to exit the scheme once your taxable sales touch ?1.6 million. You could also have the ability to make use of the cash accounting scheme along with other vat schemes such as the annual accounting scheme.
It is possible to shift 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’d have issued under the standard vat accounting scheme. There are many benefits and drawbacks while opting for the cash accounting scheme. The advantages are that when your customers pay you only after a few 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 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. Additionally, you will have the ability to reclaim vat on any purchases only once you have paid your supplier. Just in case you decide to shift over to standard vat accounting then you will also have to account for 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 then you will have to account for all pending vat within the next Six 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 possibly not pay vat on bad debts and may only have to pay vat whenever your clients pay you. However, you should check with your vat agent and understand all advantages and disadvantages about the vat cash accounting scheme before you go for such a scheme.