Monthly Archives: June 2013

Accounting schemes to simplify your VAT – 2. Cash Accounting Scheme

There are several alternative methods to standard VAT accounting that may be worth considering in terms of saving your business time and money.  This is the second in a series of posts in which we take a look at the basics of these schemes.

CASH ACCOUNTING SCHEME

Unlike standard VAT where you pay VAT on customer invoices issued and supplier invoices received even if they haven’t been settled, under Cash Accounting you account for VAT when your customers pay you and when you pay your suppliers.

PROS
This scheme can provide a cash flow advantage, especially if you have customers that are slow payers, plus it provides automatic bad debt relief.

CONS
If you buy most of your goods / services on credit you cannot reclaim VAT until you have paid your suppliers.  This means that if you regularly reclaim more VAT than you pay you will usually receive your repayment later than under standard VAT accounting.
If you intend to start using Cash Accounting from when you begin trading you should bear in mind that you will not be able to reclaim VAT on most start up expenditure, such as initial stock, until you have paid for those items.

Currently the Cash Accounting Scheme is available if you do not expect your VAT taxable supplies to exceed £1.35 million during the next tax year. You should be up-to-date with your VAT returns and payments and begin using the scheme at the beginning of a VAT period. You do not need to complete an application form or advise HMRC that you wish to start using the Cash Accounting Scheme, but if you are already registered for VAT you will need to be careful that you identify and separate sales and purchase transactions that you have already accounted for using standard VAT accounting. It should be noted that some limited transactions must still be accounted for using standard VAT.

If you would like further information on this scheme and whether it might be advantageous, then please do get in touch. Tel. 01242 223160, email admin@grantandco.co.uk.

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Accounting schemes to simplify your VAT – 1. Annual Accounting Scheme

There are several alternative methods to standard VAT accounting that may be worth considering in terms of saving your business time and money.  We will help you explore the basics of these schemes over the next few weeks.

ANNUAL ACCOUNTING SCHEME

Unlike standard VAT where you complete four VAT Returns each year and pay / reclaim any VAT due quarterly, using the Annual Accounting Scheme you make interim payments to HMRC throughout the year and submit just one VAT Return at the end of each year.

The interim payments can be paid either by nine monthly or three quarterly instalments, each based on a percentage of the total amount of VAT you paid to HMRC in the previous year, or, if you have been VAT registered for less than 12 months, on a percentage of your total estimated VAT for the year.

Once you have submitted your VAT return at the end of your accounting year any balance of VAT due is then payable within two months of the end of that year.

You can normally use this scheme if your estimated VAT taxable turnover is not likely to be more than £1.35 million (currently) in the next 12 months.

PROS
There is only one VAT return to complete per year, reducing the administrative burden on your business.
At the end of the year you get two months to complete your annual VAT return & make any balancing payment.
Having fixed interim payments can help with cash flow management.

CONS
If you regularly reclaim VAT you will only receive one refund per year.
If you suffer a decrease in turnover your fixed interim payments might become higher then the VAT payments that would be due under standard VAT. However, an adjustment can be made if the difference is sinificant.

If you would like further information on this scheme and whether it might be advantageous, then please do get in touch. Tel. 01242 223160, email admin@grantandco.co.uk.