Cash Accounting Scheme is a scheme that allows you to pay VAT on your sales once you receive payments from your customers. You will also able to reclaim VAT on your purchases once you pay your supplier.

Who can join this scheme?
If you have a VAT registered business with expected VAT taxable turnover of £1.35 million or less in the next 12 months, you can join this scheme. However, if your taxable turnover is more than £1. 6 million, you need to leave this scheme.

Alternatively, if your VAT returns or payments are not up-to-date or you have committed a VAT offence in the past 12 months, you cannot this scheme.

What are the pros and cons of joining this scheme?
Under this scheme, you will not have to account for the VAT on any outstanding invoices until you have been paid. If any bad debts incur, it will provide automatic relief for bad debts as the VAT part will never need to be paid if payment hasn’t been made from your customer.

The drawback of this scheme is you will not be able to able to reclaim VAT on any purchases if you have bought them on credit. As a result, you will have to wait until you have actually made the payment.

What records needs to be kept?
You will need a cash book that summarises all the payments made and received and all the relevant VAT. Also, corresponding tax invoices should also be recorded. All these VAT records must be kept for six years, unless you have agreed with your local VAT office to keep them for a short period.

There is no need to inform HM Revenue & Customs (HMRC) if you are using this scheme.

If you want more advice on Cash Accounting Scheme, contact us at 020 7060 9556 and speak to one of our VAT advisers today.