VAT Cash Accounting Scheme

Cash Accounting allows you to pay VAT to HMRC on the basis of cash paid and received instead of invoices issued and received.

ADVANTAGES OF CASH ACCOUNTING SCHEME

You will not have your output tax due until and unless the business received payment against the sales invoices. Cash accounting scheme is not really beneficial if your customers usually make prompt payments.
You will not need to have a separate bad debt relief scheme. If there is no payment there is no output tax due in cash accounting scheme.
Most businesses find thinking in terms of cash flow simpler and easier than tracking and analysing invoices.

POTENTIAL DRAWBACKS:

You will be unable to make any input text recovery until and unless you pay to your suppliers.
This scheme is not suitable for net repayment businesses. If you have just started your business and have made substantial initial expenditure on Assets and stock such as that your input tax exceeds output tax, you should do better delaying using the cash accounting scheme. This will allow you to recover your initial input tax on invoice basis rather than actual payment basis.

KEY CONSIDERATIONS

Any business which wishes to join this scheme should not have an expected taxable turnover exceeding £1,350,000 in coming 12 months. This figure will include all standard and zero-rated supplies. However, sale of capital assets previously used for business purposes will not be included. Exempt supplies are also excluded.
The business shirt has up-to-date VAT returns records.
The business has paid all previous VAT due or settled outstanding instalments.
Business has no previous record of VAT offences.
If annual turnover exceeds £1,600,000, business will no longer be eligible for cash accounting scheme.
This scheme does not cover the following things:
- Hire purchase agreement
- Credit sales or conditional sales agreement
- Supplies where full payment is not expected in coming six months
- Supplies invoiced but not actually delivered
If you leave the scheme, you will pay VAT due on all supplies not already paid. You can continue dealing on cash basis for VAT for further six months grace period after leaving the scheme.
There is no need to notify HMRC for starting the scheme.

ACCOUNTING FOR VAT:

Under cash accounting scheme output tax is accounted only when payment is actually received.

Cheques are considered received on their date of receipt or on the date mentioned on the cheque. Dishonoured cheque can be adjusted in the record.
Credit or debit card transactions are treated as received or paid on the date mentioned on the sales voucher.
Standing order or direct debits are treated as received or paid the day your bank account is credited or debited.
Contact us for complete guidance on how VAT is accounted for in case of part payments.

RECORDS:

Cash book will become the primary record under this scheme. There should be a separate column for VAT in receipts and payments. All payments and receipts must be clearly cross referenced.
Normal VAT invoices and evidence of input taxes must still be retained.

For further assistance and guidance you can contact Certax Fitzrovia Ltd. We provide detailed assistance on whether cash accounting scheme is suitable for your business.

Cash Accounting In VAT

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