If you are 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 have to pay vat during the next vat return irrespective of whether your client has cleared payment of your vat invoice http://vatvalidation.com. This is also true in case your business compels that you issue credit invoices most of the time. When this occurs you would end up paying the vat amounts even in case your client fails to make any payment whatsoever. Thus, you would find yourself paying vat even on your debt.
If you are a trader in Britain then you could easily shift over to the cash accounting scheme in vat that is made available from HM Revenue and Customs department or hmrc vat department. You will however qualify for this scheme only if your estimated taxable sales in the next year are not more than ?1.35 million web site. Additionally, you will need to exit the scheme once your taxable sales touch ?1.6 million. You could also be able to use the cash accounting scheme with other vat schemes such as the annual accounting scheme.
It is possible to shift over to this scheme even without informing the hmrc vat department provided you do so at the start of any vat accounting period. You will however have to separate these invoices from the earlier vat invoices that you would have issued in the standard vat accounting scheme. There are many benefits and drawbacks while choosing the cash accounting scheme. The advantages are that when your clients 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 the event any client fails to make payments.
The cons to this 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. You will also 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'll 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 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 need to account for all pending vat within the next 6 months.
If you are 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 avoid paying vat on debt and might only need to pay vat whenever your clients pay you. However, you need to seek advice from your vat agent and understand all pros and cons about the vat cash accounting scheme before you decide to opt for such a scheme.
