If you are a vat registered trader that has got to pay vat as soon as you issue a vat invoice then you can certainly opt for vat cash accounting scheme to delay your vat payments. Under this scheme you will only need to pay vat only after your customers have paid against your vat invoice.
Under regular vat accounting, you will have to pay vat in the next vat return irrespective of whether your client has cleared payment of the vat invoice. This is especially true in case your business compels that you http://vatnumbersearch.com issue credit invoices most of the time. When this occurs you’d end up paying the vat amounts in case your client fails to make any payment at all. Thus, you would find yourself paying vat even on your bad debts.
If you are a trader in the UK then you could easily shift over to the cash accounting scheme in vat that is offered by HM Revenue and Customs department or hmrc vat department. You’ll however qualify for this scheme only if your estimated taxable sales within the next year aren’t greater than ?1.35 million. Additionally, you will need 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 such as the annual accounting scheme.
You can shift to this scheme even without informing the hmrc vat department provided you do so at the start of any vat accounting period. You may however need 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 choosing the cash accounting scheme. The pros are that if your clients pay out only after a couple of days, weeks or months then you need to pay vat only after receiving payments from those clients. You can also remain safe in case any client fails to make payments.
The cons to this scheme are that you will need to keep specific payment records of all of your customers 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 to standard vat accounting then you will also have to account for all pending vat amounts including any bad debts. 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. When you do leave the scheme you will need to account for all pending vat over the following Six 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 well suited for you. You could avoid paying vat on debt and may only need to pay vat whenever your clients pay you. However, you need to seek advice from your vat agent and understand all advantages and disadvantages about the vat cash accounting scheme before you decide to go for such a scheme.