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 have to pay vat only after your clients have paid against your vat invoice.
Under regular vat accounting, you will need to pay vat during the next vat return irrespective of whether your client has cleared payment of the vat invoice. This is especially true in case your business compels that you vatnumbersearch.com issue credit invoices more often than not. In such a case you’d end up paying of the vat amounts even in case your client fails to make any payment whatsoever. Thus, you’d find yourself paying vat even on the bad debts.
If you are a trader in Britain then you may easily shift over 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 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 have the ability to use 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 have to separate these invoices from the earlier vat invoices that you would have issued under the standard vat accounting scheme. There are several benefits and drawbacks while choosing the cash accounting scheme. The advantages are that when your customers pay out only after a few days, weeks or months you’ll 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 have to keep specific payment records of all your clients 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. Just in case you decide to shift to standard vat accounting then you’ll also need to take into account all pending vat amounts including any money owed. 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. Once you do leave the scheme you will need to take into account all pending vat within the next 6 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 well suited for you. You could possibly not pay vat on bad debts and may only need to pay vat when your clients pay you. However, you should 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.