VAT Cash Accounting Scheme
Are you worried about cash flow? Do you find yourself accruing VAT liabilities but struggling to pay them since your customers aren’t paying on time? Then perhaps the Cash Accounting Scheme is the perfect application for you.
As the name suggests, the Cash Accounting Scheme involves reclaiming VAT only as your suppliers are actually paid whilst also only owing VAT on your sales invoices when your customers pay you. This can work to benefit your cash flow immensely if your customers are consistently overdue when paying. Smaller suppliers dealing with major customers can often find themselves in this position whilst those in industries with well-documented liquidity constraints may also find this scheme quite attractive.
However, there are certain instances when the Cash Accounting Scheme won’t be the right fit for you. For example, if all or, majority of your sales are zero-rated then you are likely to be in a VAT repayment position each quarter (or month depending on certain businesses). Shifting to the Cash Accounting Scheme wouldn’t make sense since you would have to pay your suppliers in order to reclaim the VAT, they charged rather than being able to reclaim it whilst still owing the supplier. Similarly, those who find themselves with better bargaining power and can delay payment to suppliers but receive cash immediately for their sales would also not benefit from this scheme.
Let’s now look at the eligibility criteria needed to join this scheme. To enrol, you must ensure your businesses taxable turnover in the next 12 months is expected to be under £1,350,000. Once you’ve joined the scheme, even if your turnover exceeds £1.35 million you don’t need to leave immediately. However, if the turnover crosses £1.6 million, you will be required to exit the scheme since this is the maximum limit. Additionally, you must be up to date on all your previous VAT submissions and payments if you’re already VAT registered whilst also ensuring you’ve not committed any VAT offences in the past 12 months.
Cheylesmore Accountants can alleviate much of the bureaucracy required in setting up the foundation to either register with HMRC for the Cash Accounting Scheme. With numerous clients on bespoke VAT schemes, such as the Flat Rate Scheme, which best suit their needs, you can count on us to understand your business as best as possible and advise on the most appropriate VAT scheme.