If you are a vat registered trader that has 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 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 irrespective of whether your client has cleared payment of the vat invoice www.vatvalidation.com. This is also true if your business compels you to issue credit invoices most of the time. When this occurs you would find yourself paying the vat amounts in case your client does not make any payment whatsoever. Thus, you’d find yourself paying vat even on the debt.
If you’re a trader in the UK then you may easily shift to the cash accounting scheme in vat that’s made available from HM Revenue and Customs department or hmrc vat department. You’ll however be eligible for a this scheme only when your estimated taxable sales within the next year are not greater than ?1.35 million visit this link. You will also need 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.
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 have to separate these invoices from your earlier vat invoices that you would have issued in the standard vat accounting scheme. There are several pros and cons while choosing the cash accounting scheme. The advantages are that if your customers pay out only after a few days, weeks or months you’ll need to pay vat only after receiving payments from those clients. It’s also possible to remain safe in the event any client doesn’t 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 after you have paid your supplier. Just in case you decide to shift to standard vat accounting then you’ll also need to account for all pending vat amounts including any money owed. Additionally, you will be barred from using vat cash accounting scheme by hmrc in case you 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 6 months.
If you’re a vat registered trader that sells services or goods mainly on credit but buys them against cash bills then the cash accounting scheme might be suitable for you. You could not pay vat on bad debts and might only need to pay vat when your clients pay you. However, you should seek advice from your vat agent and understand all pros and cons about the vat cash accounting scheme before you opt for this type of scheme.