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 opt 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 have to pay vat in the next vat return regardless of whether your client has cleared payment of the vat invoice http://vatvalidation.com. This is especially true if your business compels you to issue credit invoices more often than not. In such a case you would end up paying of the vat amounts in case your client fails to make any payment at all. Thus, you’d find yourself paying vat even on your bad debts.
If you’re a trader in the UK then you could easily shift to the cash accounting scheme in vat that is made available from HM Revenue and Customs department or hmrc vat department. You’ll however be eligible for a this scheme only when your estimated taxable sales within the next year aren’t more than ?1.35 million continued. Additionally, you will need to exit the scheme as soon as your taxable sales touch ?1.6 million. You might also be able to make use of the cash accounting scheme with other vat schemes such as the annual accounting scheme.
You can shift to this scheme even without informing the hmrc vat department provided you are doing so at the beginning of any vat accounting period. You may however need to separate these invoices from the earlier vat invoices that you would have issued under the standard vat accounting scheme. There are several pros and cons while choosing the cash accounting scheme. The pros are that if your clients pay out only after a few 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 scheme are that you will have to keep specific payment records of most your clients 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’ll also need 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 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 have to take into account all pending vat over the following Six months.
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 suitable for you. You could possibly not pay vat on debt and might 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 about the vat cash accounting scheme before you decide to go for such a scheme.