You can opt for vat cash accounting scheme to delay your vat payments

If you are a vat registered trader that has to pay vat once you issue a vat invoice then you can opt for vat cash accounting scheme to delay your vat payments. Under this scheme you will only need to pay vat only after your clients have paid against your vat invoice.

Under regular vat accounting, you will need to pay vat during the next vat return irrespective of whether your client has cleared payment of your vat invoice. This is especially true if your business compels you to issue credit invoices most of the time. In such a case you would end up paying the vat amounts even in case your client fails to make any payment at all. Thus, you would end up paying vat even on your bad debts.

If you are a trader in the UK then you could easily shift over to the cash accounting scheme in vat that is offered by HM Revenue and Customs department or hmrc vat department. You will however qualify for this scheme only when your estimated taxable sales in the next year are not more than £1.35 million. You will also need to exit the scheme once your taxable sales touch £1.6 million. You might also be able to use the cash accounting scheme with other vat schemes such as the annual accounting scheme.

You can shift over to this scheme even without informing the hmrc vat department provided you do so at the start of any vat accounting period. You will however need to separate these invoices from your earlier vat invoices that you would have issued under the standard vat accounting scheme. There are several pros and cons while opting for the cash accounting scheme. The pros are that if your clients pay you only after a few days, weeks or months then you need to pay vat only after receiving payments from those clients. You can also remain safe in case any client fails to make payments.

The cons to this scheme are that you will need to maintain specific payment records of all your clients including providing additional evidence in the form of bank statements whenever required by hmrc. You will also be able to reclaim vat on any purchases only after you have paid your supplier. In case you opt to shift over to standard vat accounting then you will also have to account for all pending vat amounts including any bad debts. You will also be barred from using vat cash accounting scheme by hmrc in case you end up making mistakes in vat calculations, get convicted in a vat offence or get penalized for vat evasion. Once you do leave the scheme then you will need to account for all pending vat within the next 6 months.

If you are a vat registered trader that sells goods or services mainly on credit but buys them against cash bills then the cash accounting scheme could be suitable for you. You could avoid paying vat on bad debts and might only need to pay vat when your clients pay you. However, you should seek advice from your vat agent and understand all pros and cons about the vat cash accounting scheme before you opt for such a scheme.