If you’re a vat registered trader that has 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 have to pay vat in the next vat return irrespective of whether your client has cleared payment of your vat invoice. This is also true if your business compels you to www.vatnumbersearch.com issue credit invoices most of the time. In such a case you’d find yourself paying of the vat amounts in case your client does not make any payment at all. Thus, you would end up paying vat even on your debt.
If you’re a trader in Britain then you could easily shift to the cash accounting scheme in vat that’s made available from HM Revenue and Customs department or hmrc vat department. You’ll however qualify for this scheme only when your estimated taxable sales in the next year aren’t greater than ?1.35 million. Additionally, you will need to exit the scheme once 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 to this scheme even without informing the hmrc vat department provided you are doing so at the start of any vat accounting period. You will however have to separate these invoices from the earlier vat invoices that you’d 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 if your clients pay out only after a couple of days, weeks or months then you need to pay vat only after receiving payments from those clients. You can also 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. You will also have the ability to reclaim vat on any purchases only once you have paid your supplier. In case you decide to shift to standard vat accounting then you will also need 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. When you do leave the scheme you will have to take into account all pending vat within the next 6 months.
If you’re a vat registered trader that sells goods or services mainly on credit but buys them against cash bills then the cash accounting scheme could be well suited for you. You could possibly not pay vat on bad debts and might only need to pay vat whenever your clients pay out. However, you need to check with your vat agent and understand all pros and cons about the vat cash accounting scheme before you go for such a scheme.