The VAT Cash Accounting Scheme

Under standard VAT accounting, you pay VAT on your sales regardless of whether your customer has paid you. Under the Cash Accounting Scheme, VAT does not need to be paid over until your customer has paid your invoice. 

Your business can enter this scheme provided your estimated VAT taxable turnover for the next VAT year is not more than £1.35 million. You can continue to use the scheme until the VAT taxable turnover exceeds £1.6 million.

Using cash accounting may help your cash flow, especially if your customers are slow payers. If a customer never pays you, you don't have to pay VAT on that bad debt as long as you continue to use the Cash Accounting Scheme. 

However, there are also some downsides of the scheme to be aware of. For example, you cannot reclaim VAT on your purchases until you have paid your suppliers. This can be a disadvantage if you buy most of your goods and services on credit. The scheme is also not advised if you regularly reclaim more VAT than you pay, you will usually receive your repayment later under cash accounting than under standard VAT accounting, unless you pay for everything at the time of purchase.

If you are interested in hearing more about the scheme, please let us know.