VAT Cash Accounting scheme
Paul from M P Accountants Northamptonshire discusses the VAT Cash Accounting Scheme.
The VAT Cash Accounting Scheme can prove invaluable for small businesses. Under the scheme businesses only account for VAT when, and to the extent that it is paid. The business therefore gets a cash flow advantage particularly when customers take a while to pay their bills (because the output VAT does not have to be paid to HMRC until the customer pays)
The advantage however is somewhat offset by the fact that the business cannot reclaim it’s input VAT (VAT on purchases) until it pays its bills.
A new business starting up which has significant initial expenditure should consider delaying starting to use the scheme. This is because the input tax which will probably exceed the output tax can be reclaimed regardless as to whether the supplier invoices have been paid.
There is a limit on the size of business which can use the scheme in that it is only open to those businesses who do not expect taxable sales in the next 12 months to exceed £1,350,000. A business already using the scheme must leave once its taxable sales in the previous four VAT quarters exceeds £1,600.000.
At M P Accountants Kettering, Corby, Northampton and Market Harborough are conveniently located near to our premises in Lamport although we have clients from all over the UK. We are a firm of Chartered Certified Accountants ensuring you receive a professional and competent service at all times.
If you need any advice regarding the cash accounting VAT scheme or any other accounting or taxation matters please don’t hesitate to contact us.