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