VAT Cash Accounting Scheme
This blog provides an overview of the VAT Cash Accounting Scheme and is based on information obtained from the HMRC web site https://www.gov.uk/vat-cash-accounting-scheme
The amount of VAT that a business pays or claims back from HM Revenue & Customs (HMRC) is usually the difference between the VAT charged by the business to customers and the VAT that the business pays on their own purchases.
With the Cash Accounting Scheme you:-
- Pay VAT on your sales when you customer pays you
- Reclaim VAT on your purchases when you have paid your supplier
In order to join the scheme, your VAT taxable turnover must be £1.35M or less.
You can use the Cash Accounting Scheme if:-
- Your business is registered for VAT
- Your estimated VAT taxable turnover is £1.35M or less in the next 12 months
VAT taxable turnover is the total of everything sold that is not VAT exempt.
You cannot use the Cash Accounting Scheme if you:-
- Use the VAT Flat Rate Scheme – instead the Flat Rate Scheme has its own cash based turnover method
- Are not up to date with your VAT returns or payments
- Have committed a VAT offence in the last 12 months (e.g. VAT evasion)
You cannot use the Cash Accounting Scheme 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
- Importing goods from within the EU
- Buying or selling goods using lease purchase, hire purchase, conditional sale or credit sale
- Moving goods outside a custom warehouse
Leaving the VAT Cash Accounting Scheme
You must leave the scheme if:-
- You are no longer eligible to be in it
- Your VAT taxable turnover is more than £1.6M
How to join the Scheme
You must be eligible to join the scheme and you join at the start of a VAT accounting period. You do not have to tell HM Revenue & Customs (HMRC) that you are using cash accounting for VAT.
How to leave the Scheme
You can leave the scheme at any time but you must leave if you are no longer eligible to use it. You should leave it at the end of a VAT accounting period.
HMRC do not have to be told that you have stopped using the scheme but you must pay HMRC any outstanding VAT (whether the customers have paid you or not). You can ask for an extra 6 months to pay this.
For further information on the VAT Cash Accounting Scheme, please contact Stallion Accountancy Services.