Should I be using the VAT cash accounting scheme?
- Share this
- Share on Facebook
- Share on Twitter
- Share on LinkeIn
Normally VAT registered businesses account for VAT as it is shown on their sales invoices. Therefore on your quarterly VAT returns you will need to pay over the VAT on all sales invoices that you have raised to customers in that quarter, even if you haven’t received payment for that invoice from the customer. This can be a cashflow burden on any business, especially a startup, as it can mean that the business has to pay over money to HMRC that it has not yet received from customers.
A potential solution to this is the VAT cash accounting scheme. If you use this scheme it means that you only pay over to HMRC VAT on sales invoices that you have already received payment for from your customers. Likewise however it means you can only recover VAT on purchase invoices you have physically paid in the period.
So the benefit of using the cash accounting scheme is that if your customers are slow payers then there is a cashflow advantage by using the scheme in that you only pay over VAT you have received from your customers. This also alleviates any issues around recovering VAT on bad debts, as you would have never paid over the VAT to HMRC on invoices that turn out to be bad debts, as the payment wouldn’t have been received from your customer.