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 have to pay vat in the next vat return regardless of whether your client has cleared payment of the vat invoice. This is especially true in case your business compels that you issue credit invoices more often than not. In such a case you would find yourself paying of the vat amounts even in case your client does not make any payment at all. Thus, you would find yourself paying vat even on your bad debts.
If you’re a trader in the UK then you may 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 qualify for this scheme http://vatnumbers.com only when your estimated taxable sales in the next year are not more 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 have the ability to make use of 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 are doing so at the start of any vat accounting period. You may however have 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 if your clients pay you only after a few days, weeks or months you’ll 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 all your clients 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 decide to shift to standard vat accounting then you’ll also have 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. When you do leave the scheme then you will have to take into account all pending vat within the next 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 avoid paying vat on debt and might only have to pay vat whenever 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 decide to go for this type of scheme.