Cash Accounting VAT Scheme

Using cash accounting you pay VAT on sales when you have been paid by your customer (if your customer never pays you, you never have to pay the VAT). This means you cannot reclaim input tax until you have paid your suppliers.

You can use this scheme if your estimated turnover during the next tax year is not more than £1.35 million. You can however continue to use the scheme until your estimated turnover exceeds £1.6 million.

You cannot use cash accounting if you are not up to date on your VAT returns and payments.

Pros

Using cash accounting may help your cash flow, especially if customers are slow payers. You do not have to pay VAT on a bad debt as long as you continue to use the cash accounting scheme.

Cons

If you regularly reclaim more VAT than you pay, you will normally receive repayment later under cash accounting compared to standard VAT accounting.

If you start using cash accounting when you start trading, you will not be able to reclaim VAT on start up expenditure until you have paid for those items.

If you leave the cash accounting scheme you will have to account for all outstanding VAT due including any bad debts.