What is the Cash Accounting VAT Scheme?
Definition: The Cash Accounting VAT Scheme means you pay VAT on your sales when your customer has paid you and you and can claim VAT on your supplier invoices when you have paid them.
There are several VAT schemes so it’s important that you do your research and find the right one for your business since the alternatives relate to specific trade sectors and turnover.
You can operate Cash Accounting VAT scheme if your estimated VAT taxable turnover does not exceed £1.6m. Cash accounting can be beneficial for your cash flow especially if your customers are slow to pay. It is even more useful if you have bad debts.
Standard vs. Cash
Under standard accounting for VAT, you have to pay the VAT on the debt even if you never receive the payment from your customer. Using the Cash Accounting Scheme, you do not pay the VAT if your customer never pays you.
The Cash Accounting Scheme may not be for you if you regularly reclaim more VAT than you pay, or if you buy a lot of goods and services on credit.