Many businesses are going to struggle through the coming months with significant restrictions being placed on people’s movements in the UK. The Government has taken action by putting in place various grants and loans to assist companies through the current crisis as well as deferring the next quarter of VAT payments. That got us thinking about what else businesses can do to improve their cash flow position, particularly as things hopefully get back to normal.
If you’re a business or indeed if you’re an accountant or a business adviser it’s worth talking to your clients to see if they have considered the cash accounting VAT scheme. It can really improve a business’ cash flow with immediate effect.
The cash accounting VAT scheme is a method of reporting VAT where the VAT is accounted for on the basis of payments made or received.
The scheme follows the generic principles of cash accounting in so far as income is recorded when it is received, and expenses are recorded in the period they are paid.
It differs from the standard method of accounting for VAT which is recorded on the date of issuing or receiving a VAT invoice, regardless of when (or if) the payment is made.
Could you use the VAT Cash Accounting Scheme?
Businesses can use the cash accounting VAT scheme, if the business is VAT registered and has a taxable turnover of less than £1.35million.
A business can’t use the cash accounting VAT scheme if it is behind with its VAT returns or has outstanding VAT payments.
Unlike other VAT schemes it is not necessary to inform HMRC when you join the scheme. You must join at the start of a new VAT accounting period and similarly if you leave the scheme, you must do so at the end of the accounting period and pay any outstanding VAT within six months.
For many businesses the cash accounting VAT scheme improves cash flow – something we could all benefit from in these uncertain times.
We have considerable VAT related expertise within the Bedrock team who are all working remotely, so if you or your clients would like to discuss how we can support you do get in touch using the contact form below or give us a call.