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 only have to pay vat only after your clients have paid against your vat invoice.
Under regular vat accounting, you will need to pay vat in the next vat return irrespective of whether your client has cleared payment of the vat invoice http://vatvalidation.com. This is also true if 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 in case your client does not make any payment whatsoever. Thus, you would end up paying vat even on your bad debts.
If you are a trader in Britain then you may easily shift over 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 greater than ?1.35 million look at this. Additionally, you will need to exit the scheme as soon as your taxable sales touch ?1.6 million. You could also have the ability to use the cash accounting scheme along with other vat schemes like the annual accounting scheme.
It is possible to 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 have to separate these invoices from your earlier vat invoices that you would have issued in the standard vat accounting scheme. There are several pros and cons while opting for the cash accounting scheme. The advantages are that when your customers pay you 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 all of your customers including providing additional evidence in the form of bank statements whenever required by hmrc. Additionally, you will have the ability to reclaim vat on any purchases only once you have paid your supplier. In case you decide to shift over to standard vat accounting then you will also have to account for all pending vat amounts including any bad debts. 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 you will have to account for 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 the cash accounting scheme could be well suited for you. You could possibly avoid paying vat on bad debts and may only need to pay vat when your clients pay out. However, you should 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.