If you’re a vat registered trader that has to pay vat once you issue a vat invoice then you can certainly 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 have to pay vat during the next vat return regardless of whether your client has cleared payment of the vat invoice www.vatvalidation.com. This is especially true in case your business compels that you issue credit invoices most of the time. When this occurs you would find yourself paying the vat amounts in case your client does not make any payment whatsoever. Thus, you would find yourself paying vat even on the bad debts.
If you’re a trader in Britain then you may easily shift to the cash accounting scheme in vat that’s made available from HM Revenue and Customs department or hmrc vat department. You’ll however qualify for this scheme only when your estimated taxable sales in the next year are not more than ?1.35 million web site. Additionally, you will need to exit the scheme as soon as your taxable sales touch ?1.6 million. You might also have the ability to make use of the cash accounting scheme along with other vat schemes like the annual accounting scheme.
You can shift to this scheme even without informing the hmrc vat department provided you do so at the start 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 several pros and cons while choosing the cash accounting scheme. The advantages are that when your customers pay you only after a couple of days, weeks or months then you need to pay vat only after receiving payments from those clients. It’s also possible to remain safe in case any client fails to 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. You will also be able to reclaim vat on any purchases only once you have paid your supplier. In case you opt to shift over to standard vat accounting then you’ll also have 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 in case you end up 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 take into account all pending vat over the following 6 months.
If you are a vat registered trader that sells services or goods mainly on credit but buys them against cash bills then this cash accounting scheme could be suitable for you. You could avoid paying vat on debt 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 advantages and disadvantages regarding the vat cash accounting scheme before you decide to opt for this type of scheme.