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 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 especially true if your business compels you to issue credit invoices more often than not. In such a case you’d find yourself paying the vat amounts in case your client does not make any payment whatsoever. Thus, you would find yourself paying vat even on the bad debts.
If you’re a trader in Britain then you may easily shift over to the cash accounting scheme in vat that is offered by HM Revenue and Customs department or hmrc vat department. You will however be eligible for a this scheme only when your estimated taxable sales in the next year aren’t more than ?1.35 million find here. You will also need to exit the scheme once your taxable sales touch ?1.6 million. You might also be able to make use of the cash accounting scheme along with other vat schemes such as 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 beginning of any vat accounting period. You may however have to separate these invoices from your earlier vat invoices that you’d have issued under the standard vat accounting scheme. There are many pros and cons while opting for the cash accounting scheme. The pros are that if your customers pay out only after a few 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 the event any client fails to make payments.
The cons to this scheme are that you will need 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. In case you opt to shift to standard vat accounting then you will also have to account for 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 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 account for all pending vat within the next Six months.
If you’re a vat registered trader that sells goods or services mainly on credit but buys them against cash bills then this cash accounting scheme might be suitable for you. You could possibly avoid paying vat on debt and might only need to pay vat whenever your clients pay out. 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 go for such a scheme.