Cash accounting VAT Scheme

Cash Accounting VAT Scheme – A Beginner’s Guide!

VAT is a record of received and paid payments and the method we use for reporting VAT is popularly known as Cash Accounting VAT Scheme.

The principles of cash accounting are religiously followed by the Cash Accounting Scheme. In other words, we can say that it keeps the track of recoded expenses when they are made and income in the period of payment. Often, this scheme is confused with the Standard VAT Accounting Scheme which keeps a track of the issuance date of the VAT invoices regardless of the period the payments are made.


Learn More: Annual VAT Accounting Scheme with Accotax Professional Guide will help you with smooth processing for Your Business Valuation.


This Post is designed to focus on our beginners, we will cover the following here:


  • What Is Cash Accounting VAT Scheme
  • Use Of Cash Accounting VAT Scheme
  • Pros And Cons

 What Is Cash Accounting VAT Scheme?

VAT is a record of received and paid payments and the method we use for reporting VAT is popularly known as Cash Accounting VAT Scheme.

With the help of this scheme, you are:

  • Able to pay VAT when the customers make their payments.
  • In a position to reclaim VAT for the purchases, you made after you pay for the suppliers.

If you are considering joining the scheme, the limit to your VAT taxable turnover should be around 1.35 million pounds.


Talk to our Tax Advisors and Accountants if you intend to know if Cash Accounting Vat Scheme is right for you.


Use Of Cash Accounting VAT Scheme:

There are certain conditions to use the scheme of cash accounting, they are listed below for you.

  • Your business must be VAT registered.
  • VAT taxable turnover must be around 1.35 million pounds or less in the upcoming 12 months.

Cash Accounting Scheme is not allowed to be used if:

  • You are behind in paying for your VAT Returns.
  • In the last twelve months, you have committed any VAT Offence action, like tax evasion which takes a lot to recover.

Moreover, there are some exceptions that are discussed here as well in such cases you are ineligible to use this scheme.


  • If you use a VAT Flat Scheme that has a cash-based turnover of its own, you will be considered ineligible.
  • your VAT payments and returns are not updated.
  • VAT evasion or any other kind of VAT offence is committed by you in the last twelve months.

Due to the following transactions, you are not eligible whereas you can use Standard VAT Accounting instead.

  • If you raise the VAT invoice in advance.
  • If the VAT invoice has a payment term that is more than six months.
  • If lease purchase, hire purchase, credit sale or conditional sale is being used to buy or sell products.
  • Products are imported in Northern Ireland.
  • The products are moved outside from a customs warehouse.


In case your VAT taxable turnover is more than 1.6 million pounds, you can learn to leave the scheme with the professional guidance of our advisory at Accotax.


When you join this scheme, it is not required to inform HMRC unlike it is in the Flat Rate VAT Scheme. At the beginning of a new VAT Accounting period, you should join. If you intend to leave the scheme, you must do it at the end accounting period. In case any VAT returns are due, pay them within six months.


Pros And Cons – Cash Accounting VAT Scheme:

The prominent feature of this scheme is that it improves the cash flow of several businesses. This is because you do not pay VAT unless you have received your business payments. Also, it does not ask you to pay VAT on the invoice if some part of it is not paid as yet.

There can be a possibility of customers who pay late or if your customers do not pay invoices and you face debt, it will be helpful.

If the case is where you get your payments instantly, this scheme will be less advantageous. If you reclaim more VAT than you pay, the case will be the same.

Until you have actually made payments to your supplier, you can’t reclaim VAT before that. This will result in many troubles if you buy products in stock.



To sum up the discussion, we can say that Cash Accounting Scheme will prove itself to be advantageous if the related terms and conditions are dealt with according to the requirements. We hope this post helped the beginners understand the definition of this scheme and ways to go about its smooth processing.


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