You can choose vat cash accounting scheme to delay your vat payments

If you are a vat registered trader that has got to pay vat once you issue a vat invoice then you can opt for vat cash accounting scheme to delay your vat payments. Under this scheme you will have to pay vat only after your customers have paid against your vat invoice.

Under regular vat accounting, you will need to pay vat in 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 that you issue credit invoices more often than not. When this occurs you would end up paying of the vat amounts in case your client fails to make any payment at all. Thus, you would end up paying vat even on the debt.

If you’re a trader in Britain 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 qualify for this scheme only if your estimated taxable sales within the next year aren’t more than ?1.35 million source. You will also need to exit the scheme once 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 to this scheme even without informing the hmrc vat department provided you do so at the start of any vat accounting period. You will however need to separate these invoices from the earlier vat invoices that you would have issued under the standard vat accounting scheme. There are several pros and cons while opting for the cash accounting scheme. The pros are that if your clients pay you only after a few days, weeks or months you’ll need to cover 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 scheme are that you will have to keep specific payment records of all 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. In case you decide to shift over to standard vat accounting then you will also need 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 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 need to take into account all pending vat over the following 6 months.

If you are a vat registered trader that sells services or goods mainly on credit but buys them against cash bills then this cash accounting scheme could be well suited for you. You could possibly not pay vat on bad debts and might only have to pay vat whenever your clients pay out. However, you should seek advice from your vat agent and understand all advantages and disadvantages about the vat cash accounting scheme before you decide to opt for this type of scheme.