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 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 your vat invoice. This is also true in case your business compels you to vatnumbersearch.com issue credit invoices more often than not. When this occurs you’d end up paying of the vat amounts in case your client fails to make any payment at all. Thus, you would find yourself paying vat even on the bad debts.
If you are a trader in Britain 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 will however qualify for this scheme only when your estimated taxable sales within the next year are not more than ?1.35 million. You will also need 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.
You can shift 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 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 if your clients pay you only after a few days, weeks or months then you need to cover 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 maintain specific payment records of most of your customers 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. In case you decide to shift over to standard vat accounting then you will also have to account for all pending vat amounts including any bad debts. Additionally, you will 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. When you do leave the scheme you will need to take into account all pending vat within the next Six months.
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 suitable for you. You could possibly not pay vat on bad debts and might only have to pay vat when your clients pay out. However, you should seek advice from your vat agent and understand all pros and cons regarding the vat cash accounting scheme before you go for this type of scheme.