TAX SAVING TIPS – BENEFITS TO CASH ACCOUNTING FOR VAT

TAX SAVING TIPS – CASH ACCOUNTING FOR VAT


As part of our Tax Saving Tips series, Your Tax Shop, based in Ashton-under-Lyne, would like to introduce you to the Cash Accounting method of calculating your VAT liability when you are a VAT registered business.

So… what is Cash Accounting? Usually, the amount of VAT you pay to HM Revenue and Customs (HMRC) is the difference between the VAT charged on your sales invoices and the VAT to be reclaimed on your purchase invoices. Your Tax Shop can confirm that as opposed to this, the Cash Accounting method of calculating your VAT liability is prepared in a slightly different way.

Your Tax Shop can confirm that the Cash Accounting scheme enables VAT registered businesses to only pay VAT on the sales when a customer pays them and reclaim VAT on the purchases when they have paid their suppliers.

How do I start to introduce the Cash Accounting method? You can start to introduce using the Cash Accounting method, so long as your business meets the following criteria:

  • – Registered for VAT
  • – Estimated VAT taxable turnover is £1.35 million or less in the next 12 months

Your Tax Shop advises that you do not have to inform HM Revenue and Customs (HMRC) when you start to use Cash Accounting, however you must join at the beginning of a VAT accounting period to guarantee a smooth transition. You must also be eligible to join the scheme and meet the above criteria.

Are there any exceptions to using Cash Accounting? Your Tax Shop can confirm that you are unable to use the Cash Accounting method if your business meets any of the following conditions:

  • – You already use the Flat Rate scheme (FRS). FRS has its own cash-based turnover method. Get in touch with us for more details.
  • – You are not up to date with your VAT Returns or payments to HMRC
  • – You have committed a VAT offence in the last 12 months e.g. VAT evasion

Your Tax Shop must inform you that you also cannot use Cash Accounting for the following transactions:

  • – Payment terms of a VAT invoice are 6 months or more
  • – Where a VAT invoice is raised in advance e.g. before the work is completed
  • – Buying or selling goods using lease purchase, hire purchase, conditional sale or credit sale
  • – Importing goods from within the EU
  • – Moving goods outside a customs warehouse

Are you unsure whether Cash Accounting would benefit your business or simply require some more help and advice? Get in touch with Your Tax Shop today on 0161 339 5689 or hello@yourtaxshop.co.uk and see how Your Tax Shop, a multi-award-winning accountancy practice based in the heart of Ashton-under-Lyne, can help you and your business!

As well as preparing and finalising your financial records, Your Tax Shop is renowned for stepping away from the typical accountancy stereotypes of being daunting and boring, by introducing new, innovative ways of caring for our clients and offering them simple, easy-to-understand business advice. We take great delight in offering an exceptional level of client care and are always on hand to help as your business flourishes and grows! Your Tax Shop are here for you every step of the way.