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 opt for vat cash accounting scheme to delay your vat payments. Under this scheme you will need to pay vat only after your customers have paid against your vat invoice.
Under regular vat accounting, you will need to pay vat during the next vat return regardless of whether your client has cleared payment of the vat invoice. This is also true in case your business compels that you 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 at all. Thus, you would find yourself paying vat even on your debt.
If you are a trader in Britain then you could easily shift to the cash accounting scheme in vat that is made available from HM Revenue and Customs department or hmrc vat department. You will however be eligible for a this scheme www.vatnumbers.com only if your estimated taxable sales in the next year aren’t greater than ?1.35 million. Additionally, you will have to exit the scheme once your taxable sales touch ?1.6 million. You might also be able to make use of the cash accounting scheme with other vat schemes such as the annual accounting scheme.
It is possible to shift to this scheme even without informing the hmrc vat department provided you do so at the start of any vat accounting period. You will however need to separate these invoices from the earlier vat invoices that you’d have issued in the standard vat accounting scheme. There are several benefits and drawbacks while opting for the cash accounting scheme. The advantages are that when 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. It’s also possible to remain safe in the event any client fails to make payments.
The cons to this scheme are that you will need to keep specific payment records of most your clients 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. Just in case you opt to shift to standard vat accounting then you’ll also need 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 find yourself making mistakes in vat calculations, get convicted in a vat offence or get penalized for vat evasion. Once you do leave the scheme then you will have to take into account all pending vat over the following Six months.
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 could be suitable for you. You could possibly not pay vat on bad debts and may only have to pay vat whenever your clients pay you. However, you need to check with your vat agent and understand all advantages and disadvantages regarding the vat cash accounting scheme before you decide to opt for such a scheme.