If you’re a vat registered trader that has got 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 during the next vat return irrespective of whether your client has cleared payment of your vat invoice vat validation. This is also true if your business compels that you issue credit invoices more often than not. When this occurs you would end up paying of the vat amounts in case your client does not make any payment at all. Thus, you’d end up paying vat even on your debt.
If you’re a trader in the UK then you could easily shift over to the cash accounting scheme in vat that’s made available from 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 are not greater than ?1.35 million go here. Additionally, you will need to exit the scheme once your taxable sales touch ?1.6 million. You might also be able to use the cash accounting scheme with other vat schemes like 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 beginning of any vat accounting period. You may however have to separate these invoices from the earlier vat invoices that you’d have issued in the standard vat accounting scheme. There are several pros and cons while choosing the cash accounting scheme. The advantages are that when your clients pay out only after a few days, weeks or months then you need to pay vat only after receiving payments from those clients. You can also remain safe in the event any client fails to make payments.
The cons to this particular scheme are that you will need to maintain 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 once you have paid your supplier. In case you opt to shift to standard vat accounting then you will also need to take into account all pending vat amounts including any bad debts. Additionally, you will be barred from using vat cash accounting scheme by hmrc if you happen to 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 then you will need to account for all pending vat over the following 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 might be suitable for you. You could not pay vat on debt and might only need to pay vat whenever your clients pay you. However, you should check with your vat agent and understand all pros and cons regarding the vat cash accounting scheme before you decide to go for such a scheme.