If you are a vat registered trader that has got to pay vat as soon as you issue a vat invoice then you can go for vat cash accounting scheme to delay your vat payments. Under this scheme you will only need 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 your vat invoice. This is also true in case your business compels that you 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 at all. Thus, you'd end up paying vat even on your debt.
If you are a trader in the UK then you may easily shift 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 vat numbers only when your estimated taxable sales in the next year are not greater than ?1.35 million. Additionally, you will need to exit the scheme as soon as your taxable sales touch ?1.6 million. You might also be able to use the cash accounting scheme with other vat schemes like the annual accounting scheme.
It is possible to shift over 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 your earlier vat invoices that you'd have issued in the standard vat accounting scheme. There are several pros and cons while choosing the cash accounting scheme. The advantages are that when your customers pay out only after a few days, weeks or months you'll need to pay vat only after receiving payments from those clients. You can also remain safe in the event any client fails to make payments.
The cons to this particular scheme are that you will need to maintain specific payment records of most your clients including providing additional evidence in the form of bank statements whenever required by hmrc. Additionally, you will be able to reclaim vat on any purchases only after you have paid your supplier. In case you opt to shift to standard vat accounting then you'll also need to take into account 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. When you do leave the scheme then you will have to account for all pending vat over the following Six months.
If you're a vat registered trader that sells services or goods 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 may only need to pay vat when your clients pay you. However, you need to check with your vat agent and understand all pros and cons regarding the vat cash accounting scheme before you go for such a scheme.
