If you’re a vat registered trader that has got 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 have to pay vat only after your clients have paid against your vat invoice.
Under regular vat accounting, you will have to pay vat in the next vat return irrespective of whether your client has cleared payment of your vat invoice. This is especially true in case your business compels that you issue credit invoices most of the time. In such a case you would find yourself paying the vat amounts even in case your client does not make any payment whatsoever. Thus, you’d end up paying vat even on your bad debts penny auctions.
If you’re a trader in the UK then you could easily shift to the cash accounting scheme in vat that’s 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 are not more than ?1.35 million. You will also have to exit the scheme as soon as 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.
It is possible to 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 may however have to separate these invoices from your earlier vat invoices that you would have issued under the standard vat accounting scheme. There are many benefits and drawbacks while choosing the cash accounting scheme. The advantages are that when your clients pay out only after a couple of 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 fails to make payments.
The cons to this particular 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. Additionally, you will be able to reclaim vat on any purchases only after you have paid your supplier. In case you decide to shift to standard vat accounting then you will 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 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 you will have to take into account all pending vat over the following Six 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 well suited for you. You could not pay vat on bad debts and might only need to pay vat when your clients pay you. However, you need to check with your vat agent and understand all advantages and disadvantages regarding the vat cash accounting scheme before you decide to opt for such a scheme.
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