The VAT cash accounting scheme is a useful tool for a number f small businesses, since you only repay VAT to HMRC once you have received payment yourself. If one has cashflow concerns, the scheme could be a lifesaver.

The amount of VAT one pay HMRC (HM Revenue and Customs) usually is the difference between the sales invoices and purchase invoices. One have to report these figures and pay any money to HMRC even if the invoices haven’t been paid.

With the Cash Accounting Scheme, one:

  • Pay VAT on sales when customers pay him/her
  • Reclaim VAT on purchases when he/she have paid the supplier

In order to join the scheme, a person’s VAT taxable must be £1.35 million or less.

Benefits of the VAT Cash Accounting Scheme

  • Under the standard VAT scheme, one must repay VAT on any invoices he/she have issued, whether or not he/she have received payment from the customers. Under the cash accounting scheme, one only repay VAT once he/she have been paid themselves.
  • Under the standard VAT scheme, one can reclaim VAT on things he/she have purchased, even if he/she has yet to pay the supplier. Under the cash accounting scheme, one can only reclaim for the VAT paid on purchases once he/she have paid the suppliers.

Eligibility

One can use cash accounting if:

  • His/her business is registered for VAT
  • His/her estimated VAT taxable turnover is £1.35 million or less in the next 12 months

VAT taxable turnover is the total of everything sold that isn’t VAT exempt.

However, there are some exceptions as well. One can’t use cash accounting if:

  • One uses the VAT Flat Rate Scheme. The Flat Rate Scheme has its own cash-based turnover method
  • One is not up to date with VAT returns or payments
  • One has not committed a VAT offence in the last 12 months, e.g. VAT evasion

One can’t use it for the following transactions:

  • Where the payment terms of a VAT invoice are 6 months or more
  • Where a VAT invoice is raised in advance
  • Buying or selling goods using lease purchase, hire purchase, conditional sale or credit sale
  • Importing goods from within the EU
  • Moving goods outside a customs warehouse

One must leave the scheme if:

  • One is no longer eligible to be in it
  • One’s VAT taxable turnover is more than £1.6 million
  • How to join the Cash Accounting Scheme?
  • One must be eligible to join the scheme.
  • One must join at the beginning of a VAT accounting period.
  • It is not required to tell HMRC one use cash accounting.

How to leave the Cash Accounting Scheme?

One can leave the scheme at any time, however one must leave if he/she is no longer eligible to use it. One should leave at the end of a VAT accounting period. One is not required to tell HMRC that he/she have stopped using it, but he/she must pay HMRC any outstanding VAT. One can ask for an extra 6 months to pay this.For more information, you can call on VAT Helpline Number.