If you are a vat registered trader that has 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 need to pay vat in the next vat return regardless of whether your client has cleared payment of the vat invoice. This is also true in case your business compels that you vatnumbersearch issue credit invoices most of the time. When this occurs you’d end up paying the vat amounts even in case your client fails to make any payment at all. Thus, you would find yourself paying vat even on your debt.
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 within the next year aren’t greater than ?1.35 million. Additionally, you will have to exit the scheme as soon as your taxable sales touch ?1.6 million. You could also be able to use the cash accounting scheme with other vat schemes like the annual accounting scheme.
It is possible to shift over to this scheme even without informing the hmrc vat department provided you do so at the beginning of any vat accounting period. You may however need to separate these invoices from your earlier vat invoices that you would have issued in the standard vat accounting scheme. There are several benefits and drawbacks while choosing the cash accounting scheme. The pros are that when your customers pay you only after a few days, weeks or months you’ll need to cover vat only after receiving payments from those clients. You can also remain safe in the event any client doesn’t make payments.
The cons to this scheme are that you will need to keep specific payment records of most your clients including providing additional evidence in the form of bank statements whenever required by hmrc. Additionally, you will be able to reclaim vat on any purchases only once you have paid your supplier. In case you decide to shift over to standard vat accounting then you will 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 if you happen to end up 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 need to account for all pending vat over the following 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 suitable for you. You could possibly avoid paying vat on debt and may only need to pay vat when 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 decide to go for such a scheme.