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 need to pay vat in the next vat return regardless of whether your client has cleared payment of your vat invoice vat validation. This is also true in case your business compels that you issue credit invoices more often than not. In such a case you would find yourself paying of the vat amounts even in case your client does not make any payment whatsoever. Thus, you’d find yourself paying vat even on your debt.
If you’re a trader in Britain then you could easily shift to the cash accounting scheme in vat that is offered by HM Revenue and Customs department or hmrc vat department. You’ll however be eligible for a this scheme only if your estimated taxable sales in the next year aren’t greater than ?1.35 million get the facts. You will also need to exit the scheme as soon as your taxable sales touch ?1.6 million. You might also have the ability to use 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 may however have 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 choosing the cash accounting scheme. The advantages are that if your clients pay you only after a few days, weeks or months you’ll need to cover vat only after receiving payments from those clients. You can also remain safe in the event any client doesn’t 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. Just in case you opt to shift to standard vat accounting then you will also have to account for 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 then you will need to account for all pending vat within the next Six months.
If you’re 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 well suited for you. You could avoid paying vat on bad debts and might only have to pay vat whenever your clients pay you. However, you should check with your vat agent and understand all advantages and disadvantages regarding the vat cash accounting scheme before you go for such a scheme.