If you are a vat registered trader that has got 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 need to pay vat only after your customers 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 your vat invoice. This is especially true if your business compels that you issue credit invoices most of the time. When this occurs you would find yourself paying the vat amounts even in case your client fails to make any payment at all. Thus, you’d end up paying vat even on the debt home staging.
If you’re a trader in the UK then you may 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 only if your estimated taxable sales within the next year are not greater than ?1.35 million. 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.
You can shift over to this scheme even without informing the hmrc vat department provided you are doing so at the beginning 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 many benefits and drawbacks while opting for the cash accounting scheme. The pros are that when your clients pay out only after a couple of days, weeks or months you’ll 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 have to keep specific payment records of all your clients including providing additional evidence in the form of bank statements whenever required by hmrc. You will also have the ability 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 take into account 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 then you will need to account for all pending vat over the following 6 months belly dancing.
If you are 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 well suited for you. You could possibly avoid paying vat on bad debts and might only have to pay vat whenever your clients pay out. However, you need to seek advice from your vat agent and understand all advantages and disadvantages regarding the vat cash accounting scheme before you decide to go for this type of scheme.
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