THE question we deal with this week is: ‘I currently pay VAT when I raise a sales invoice, but it can be a couple of months before I receive payment. Is there anyway around this?’
There are several different VAT schemes run by HMRC and I would suggest the Cash Accounting Scheme may be of use to you. With this calculation method you do not pay VAT on sales invoices until you have received the customers payment.
However this also means that you cannot claim VAT on your purchase invoices until they have been paid by you, so you should consider whether this is practical for your business.
This method is open to any business with a taxable turnover of less than £1.35 million. You can remain in the scheme until your taxable turnover reaches £1.6 million.
You do not need to apply to HMRC to begin using this scheme, however you cannot use it if you are not up to date on your VAT returns and payments, or if you have been convicted of a VAT offence or charged a penalty for VAT evasion in the last year.
You may join the Cash Accounting scheme at the beginning of any VAT period or the day your VAT registration starts. From that point you must record the output and input VAT from the receipts and payments you make, being careful that you don’t “double count” the figures, so they are not duplicated on your VAT return.
For example if you have already recorded a sales invoice under the standard VAT system, you should not record this when you receive the payment under Cash Accounting.
If you decide Cash Accounting is not for you, you may leave the scheme at the end of any VAT accounting period, but must then account for any outstanding invoices on your next VAT return.
For more advice, contact Gail Kristiansen on gail.kristiansen@renniewelch.co.uk or 01573 224931.