You are able to choose vat cash accounting scheme to delay your vat payments

If you are a vat registered trader that has 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 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 regardless of whether your client has cleared payment of the vat invoice This is especially true in case your business compels you to issue credit invoices most of the time. When this occurs you’d find yourself paying of the vat amounts in case your client does not make any payment whatsoever. Thus, you would find yourself paying vat even on the debt.

If you are a trader in the UK then you may easily shift to the cash accounting scheme in vat that’s offered by HM Revenue and Customs department or hmrc vat department. You will however be eligible for a this scheme only when your estimated taxable sales in the next year are not greater than ?1.35 million click this. You will also need to exit the scheme as soon as your taxable sales touch ?1.6 million. You could also be able to make use of the cash accounting scheme with other vat schemes like the annual accounting scheme.

You can shift over to this scheme even without informing the hmrc vat department provided you do so at the beginning of any vat accounting period. You may however need to separate these invoices from the earlier vat invoices that you would 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 you only after a couple of days, weeks or months you’ll need to pay vat only after receiving payments from those clients. It’s also possible to remain safe in case any client doesn’t make payments.

The cons to this particular 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 be able 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 take into account all pending vat amounts including any bad debts. Additionally, you will be barred from using vat cash accounting scheme by hmrc if you happen to end up making mistakes in vat calculations, get convicted in a vat offence or get penalized for vat evasion. Once you do leave the scheme you will have to account for all pending vat within the next 6 months.

If you’re a vat registered trader that sells services or goods mainly on credit but buys them against cash bills then this cash accounting scheme might be suitable for you. You could avoid paying vat on debt and might only need 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 opt for such a scheme.