If you are a vat registered trader that has got to pay vat once you issue a vat invoice then you can opt 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 regardless of whether your client has cleared payment of your vat invoice. This is also true in case your business compels that you issue credit invoices more often than not. When this occurs you would find yourself paying of 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 accounting.
If you are a trader in Britain then you may easily shift 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 in the next year are not greater than ?1.35 million. Additionally, you will 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 along with other vat schemes such as the annual accounting scheme.
It is possible to shift over to this scheme even without informing the hmrc vat department provided you do 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 under the standard vat accounting scheme. There are several benefits and drawbacks while opting for the cash accounting scheme. The advantages are that when your customers pay out 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 case 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 be able to reclaim vat on any purchases only after 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. Additionally, you will be barred from using vat cash accounting scheme by hmrc in case you 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 then you will have to account for all pending vat within the next 6 months home staging.
If you are 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 suitable for you. You could avoid paying vat on bad debts and might only have to pay vat whenever your clients pay you. However, you need to 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.
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