CASH ACCOUNTING AND VAT: As a rule the amount payable to HM Revenue and Customs is the difference of the VAT amount on your sales invoices offset against the VAT amount on your purchases invoices.
The business must report these figures and make a payment to HMRC even on invoices that are not paid.
The VAT Cash Accounting Scheme (CAS) is different. You only pay the tax on sales when your customers have paid you.
You can also reclaim VAT when you pay your suppliers for business purchases.
You can get help with tax issues to determine if the Cash Accounting Scheme is best for your business.
Note: Eligibility to join the scheme means the company VAT taxable turnover must be less than £1.35 million.
Cash Accounting Scheme Eligibility Criteria
A company can use the CAS providing the business has UK VAT registration. The company VAT taxable turnover for the next 12 months must not be more than £1.35 million. This is the VAT cash accounting threshold.
Note: VAT taxable turnover excludes anything that is tax exempt. But it does include zero rated tax items. This means a company selling goods with a VAT liability of £1M in sales, in standard tax, and £500,000 in zero rate VAT sales, is eligible for the scheme.
VAT Cash Accounting System Exclusions
There are some exclusions to the VAT Cash Accounting System. Typical exclusions to cash accounting and VAT include:
- A company using the VAT Flat Rate Scheme. That is because this scheme has its own cash based method.
- Times when the company is in default payment with VAT Returns or payments.
- Situations where the company has committed a VAT offence, such as VAT evasion, in the last 12 months.
There are times when you must use the standard VAT accounting system instead of the Cash Accounting System. They include situations such as when:
- The payment terms of an invoice exceeded six months.
- You raised a VAT invoice in advance.
- You use lease purchase, hire purchase, conditional sale, or credit sale to buy or sell goods.
- The business imports goods from within the European Union.
- Moving the goods out of a customs warehouse.
Times When You Must Leave the Scheme
A company must leave the scheme if it is no longer eligible to be in it. The same applies any time the business VAT taxable turnover is greater than £1.6 million in its financial year.
Joining and Leaving the VAT Cash Accounting Scheme
How to Join the Cash Accounting Scheme
The company must meet the VAT Cash Accounting Scheme eligibility criteria. It can then join the program at its next VAT accounting period.
Note: If a company is using a cash accounting system it does not need to inform Her Majesty’s Revenue and Customs.
How to Leave the Cash Accounting Scheme
The company can choose to leave the scheme at any time. But, it must do so if it loses its eligibility. Either way, the company would need to leave at the end of its VAT accounting period.
The business does not need to inform HMRC that it has left the scheme. But, it must pay all outstanding VAT bills. This includes any that your customers have failed to pay you.
Note: As a rule, your company will have an extra 6 months to make the payments after leaving the scheme.