Do you manage your own VAT returns?

Unless you opt to register, or use, one of the available VAT special schemes, you are likely paying VAT to HMRC once a quarter based on the difference between the VAT added to your sales invoices less any VAT included in business purchases and expenses (including certain acquisitions of assets).

There is a problem with this option if you give credit to your customers – allow them to pay for any goods or services provided at some future date – and the amount owed by customers is more than the amount you owe to suppliers.

In this situation, you could be paying VAT added to your sales invoices, to HMRC, before you have received the cash from your customers.

Clearly this will have a negative impact on your cash flow.

To remedy this situation all you need to do is adopt the VAT Cash Accounting Scheme. Once adopted, your VAT returns will be based on the amount received from customers, less amounts paid to suppliers, rather than the invoiced amounts.

Not all businesses can use the scheme. To register, you must obviously be registered for VAT and your estimated taxable turnover will need to be under £1.35m in the next twelve month period.

And you will have to leave the Cash Accounting Scheme if your turnover rises to £1.6m or more.

Depending on the difference between your debtors (money due from customers) and monies owed to suppliers there is usually an initial boost to your cash flow in the first return you submit to HMRC.

If you are using the standard VAT scheme and would like to see if there would be an advantage in switching to the Cash Accounting Scheme, please call. We can take a look at your financial position in some detail and quantify the cash flow benefits. It really makes no sense to be paying out VAT to HMRC if the funds to pay this are still in your customers bank accounts.

Share:

Accounting in Sheffield and Doncaster Certificates

Recently Added News

Competitive disadvantages

The new Economic Crime and Corporate Transparency Act mandates that small companies and micro-entities will have to file at Companies House accounts, that for the

Read More »

Related News

Register an overseas company

An overseas company must register with Companies House if they want to set up a place of business in the UK. This would mean that

Time to renew tax credits

HMRC is currently sending the annual tax credit renewal packs to the 730,000 tax credit claimants and is encouraging recipients to renew their tax credits

New law on tipping

Millions of UK workers will take home an estimated £200 million more of their hard-earned cash, as employers are banned from withholding tips under the

Quick Links

Web + SEO - LoudCrowd