I run two separate businesses (A Ltd and B) that have separate VAT registrations, as only one is a limited company. Both A and B use the cash accounting scheme which means the VAT due on sales is only accounted for when the payment is received. However, sometimes customers make payments to A which are due to B. I correct this by transferring funds from the bank account of A to B, or by setting-off the amounts owing between the businesses. When should I treat the payment due to B as being paid for my VAT records?
As your businesses have separate VAT registrations they are independent for VAT accounting purposes. Business B is only treated as receiving the payment when the money arrives in its bank account from an electronic transfer, or a cheque is received, as long as that cheque subsequently clears. It is irrelevant that the money has come via A’s bank account. Where the payment to B is made by you off-setting the amounts owing between A and B, you should treat B as receiving the money on the date you made this set-off. Warning, deliberately getting your customers to pay into the wrong account, or an undue delay in making a set off in order to defer payment of VAT, could be treated by HMRC as fraudulent behaviour.