If you’re a vat registered trader that has to pay vat as soon as 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 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 regardless of whether your client has cleared payment of the vat invoice. This is especially true in case your business compels that you vat number search issue credit invoices most of the time. 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’d end up paying vat even on your bad debts.
If you are a trader in the UK then you could easily shift over to the cash accounting scheme in vat that’s made available from HM Revenue and Customs department or hmrc vat department. You will however qualify for this scheme only if your estimated taxable sales within the next year are not more than ?1.35 million. You will also have to exit the scheme once your taxable sales touch ?1.6 million. You might also be able to use the cash accounting scheme along with other vat schemes like the annual accounting scheme.
You can shift over to this scheme even without informing the hmrc vat department provided you are doing so at the start of any vat accounting period. You will however need to separate these invoices from the earlier vat invoices that you’d 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 you’ll need to pay 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 have to keep 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 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 will also have to take into account all pending vat amounts including any money owed. 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. When you do leave the scheme then you will have to take into account 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 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 about the vat cash accounting scheme before you go for such a scheme.