VAT Cash Accounting Scheme
1. Overview
Usually, the amount of VAT you pay HM Revenue & Customs (HMRC) is the difference between your sales invoices and purchase invoices. You have to report these figures and pay any money to HMRC even if the invoices haven’t been paid.
With the Cash Accounting Scheme you:
- pay VAT on your sales when your customers pay you
- reclaim VAT on your purchases when you have paid your supplier
To join the scheme your VAT taxable turnover must be £1.35 million or less.
2. Eligibility
You can use cash accounting if:
- your business is registered for VAT
- your estimated VAT taxable turnover is £1.35 million or less in the next 12 months
VAT taxable turnover is the total of everything sold that isn't VAT exempt.
Exceptions
You can’t use cash accounting if:
- you use the VAT Flat Rate Scheme - instead, the Flat Rate Scheme has its own cash-based turnover method
- you're not up to date with your VAT Returns or payments
- you’ve committed a VAT offence in the last 12 months - eg VAT evasion
You can’t use it for the following transactions (you have to use standard VAT accounting instead):
- where the payment terms of a VAT invoice are 6 months or more
- where a VAT invoice is raised in advance
- buying or selling goods using lease purchase, hire purchase, conditional sale or credit sale
- importing goods from within the EU
- moving goods outside a customs warehouse
Leaving the scheme
You must leave the scheme if:
- you’re no longer eligible to be in it
- your VAT taxable turnover is more than £1.6 million
3. Join or leave the scheme
How to join
You must be eligible to join the scheme. You join at the beginning of a VAT accounting period.
You don’t have to tell HM Revenue & Customs (HMRC) you use cash accounting.
How to leave
You can leave the scheme at any time, but you must leave if you’re no longer eligible to use it. You should leave at the end of a VAT accounting period.
You don’t have to tell HMRC you’ve stopped using it, but you must pay HMRC any outstanding VAT (whether your customers have paid you or not). You can ask for an extra 6 months to pay this.