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 only 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. This is especially true in case your business compels you to issue credit invoices more often than not. When this occurs you would find yourself paying of the vat amounts even in case your client fails to make any payment whatsoever. Thus, you’d find yourself paying vat even on your debt oil trading.
If you’re a trader in the UK then you could easily shift to the cash accounting scheme in vat that is offered by HM Revenue and Customs department or hmrc vat department. You’ll however be eligible for a this scheme only if your estimated taxable sales within the next year aren’t more than ?1.35 million. You will also have to exit the scheme as soon as your taxable sales touch ?1.6 million. You could also have the ability to use the cash accounting scheme with other vat schemes like the annual accounting scheme.
You can shift to this scheme even without informing the hmrc vat department provided you do so at the beginning of any vat accounting period. You will however have 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 pros are that if your customers pay you only after a couple of 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 need to maintain specific payment records of all of your customers including providing additional evidence in the form of bank statements whenever required by hmrc. You will also be able to reclaim vat on any purchases only once you have paid your supplier. In case you opt 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 you will need to account for all pending vat over the following Six months penny auctions.
If you’re 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 should check with your vat agent and understand all advantages and disadvantages about the vat cash accounting scheme before you decide to go for this type of scheme.
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