If you’re a vat registered trader that has to pay vat once 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 have 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. This is especially true if your business compels you to issue credit invoices most of the time. In such a case you would find yourself paying the vat amounts in case your client fails to make any payment at all. Thus, you’d find yourself paying vat even on your debt accounting.
If you are 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’ll however qualify for this scheme only if your estimated taxable sales in the next year are not greater than ?1.35 million. You will also have to exit the scheme once your taxable sales touch ?1.6 million. You could also have the ability to make use of the cash accounting scheme along with other vat schemes such as the annual accounting scheme.
You can shift over 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 the earlier vat invoices that you would have issued in the standard vat accounting scheme. There are several benefits and drawbacks while opting for the cash accounting scheme. The pros are that when your customers pay you only after a couple of 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 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 have the ability 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 need to account for all pending vat amounts including any money owed. You will also 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. When you do leave the scheme you will have to take into account all pending vat within the next 6 months modeling.
If you’re a vat registered trader that sells goods or services mainly on credit but buys them against cash bills then this cash accounting scheme might be suitable for you. You could possibly avoid paying vat on debt and may only need to pay vat when your clients pay out. However, you need to seek advice from your vat agent and understand all pros and cons about the vat cash accounting scheme before you decide to go for such a scheme.
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