If you are a vat registered trader that has to pay vat as soon as you issue a vat invoice then you can opt 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 need to pay vat during the next vat return regardless of whether your client has cleared payment of your vat invoice. This is also true in case your business compels you to http://vatnumbersearch.com issue credit invoices most of the time. In such a case you’d end up paying the vat amounts in case your client fails to make any payment whatsoever. Thus, you’d end up paying vat even on the bad debts.
If you are a trader in the UK then you may easily shift over to the cash accounting scheme in vat that is offered by 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. You will also have to exit the scheme once your taxable sales touch ?1.6 million. You could also have the ability to use the cash accounting scheme along with other vat schemes like the annual accounting scheme.
You can shift to this scheme even without informing the hmrc vat department provided you are doing so at the beginning of any vat accounting period. You may however have to separate these invoices from your earlier vat invoices that you would have issued under the standard vat accounting scheme. There are many benefits and drawbacks while choosing the cash accounting scheme. The pros are that if your clients 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 case any client doesn’t make payments.
The cons to this particular scheme are that you will need to keep specific payment records of most your clients 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. Just in case you decide to shift over to standard vat accounting then you will also have to account for all pending vat amounts including any money owed. You will also be barred from using vat cash accounting scheme by hmrc in case you end up 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 take into account 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 could be well suited for you. You could possibly avoid paying vat on bad debts and may only have to pay vat whenever your clients pay out. However, you need to seek advice from your vat agent and understand all advantages and disadvantages about the vat cash accounting scheme before you go for this type of scheme.