What is the VAT Cash Accounting Scheme?
Under the standard method of accounting for VAT a company must pay over the output VAT invoiced to customers in the period. If the customer has not yet paid the company for these invoices then cash flow can suffer, particularly if the company suffers from slow payments or bad debts.
For smaller companies i.e. those with an annual turnover of less than £1,350,000, the Cash Accounting Scheme allows the company to only pay over the output VAT received from customers in the period. Of course if the scheme is adopted then the same principle applies to input tax on goods and services purchased. Once within the scheme a company can remain in the scheme until its turnover exceeds £1,600,000.
There is no formal requirement to advise H.M. Customs that the company is operating the scheme.
Since the scheme will not benefit all businesses we will be pleased to discuss with you which method is most suitable for your business.