Waiting to be paid but still having to hand over VAT? The VAT Cash Accounting Scheme potentially lets you pay VAT only when your customer pays you, helping to ease cash flow pressures for small and medium-sized businesses.
This approach can offer significant benefits if your business offers extended credit terms to customers or regularly deals with bad debts. Rather than having to find the money to pay VAT on sales you have not yet been paid for, the scheme allows businesses to align VAT payments with actual cash received. For many small and medium-sized businesses, this can offer real breathing space and reduce the strain on working capital.
However, the scheme may not be as useful in all cases. If you are typically paid immediately at the point when you make a sale or if your business often reclaims more VAT than it pays out the scheme may offer little or no advantage. The same applies to businesses that make continuous supplies of services, where the VAT treatment might not align neatly with cash receipts.
If the scheme is not proving worthwhile, businesses can leave the scheme at the end of a VAT accounting period and return to the standard method of VAT accounting. However, for the right businesses the VAT Cash Accounting Scheme can offer significant benefits.
To join the scheme, a business must have a VAT taxable turnover of £1.35 million or less in the next 12 months. Once in the scheme, a business can continue using it until their turnover exceeds £1.6 million.
