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 need to pay vat only after your customers 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 your vat invoice. This is especially true in case your business compels that you issue credit invoices most of the time. In such a case you would find yourself paying of the vat amounts even in case your client does not make any payment at all. Thus, you would find yourself paying vat even on your debt uncategorized.
If you are a trader in Britain then you could easily shift over to the cash accounting scheme in vat that is 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 more than ?1.35 million. You will also have 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 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 advantages 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. You can also remain safe in case any client doesn't make payments.
The cons to this particular scheme are that you will need to maintain 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 after you have paid your supplier. In case you decide 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 in case you 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 within the next 6 months penny auctions.
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 might be well suited for you. You could possibly avoid paying vat on debt and might only have to pay vat whenever your clients pay you. However, you should seek advice from your vat agent and understand all pros and cons regarding the vat cash accounting scheme before you decide to go for such a scheme.
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