If your business qualifies for the cash accounting scheme (CAS), it’s usually beneficial to use it. Its big advantage is that the trigger date for accounting for VAT on your sales, is when you get paid and not when you supply goods or services to your customers. So you’re not out of pocket (in terms of VAT) if a customer is a slow payer. Plus, you don’t have to deal with the tricky bad debt relief rules, which is all good news for your cash flow.
The drawback with the CAS is that you can’t reclaim VAT on purchases until you pay for them, rather than when you’re invoiced. This means the CAS isn’t for you if you usually reclaim VAT refunds on your returns. This can happen, for example, if you make a lot of zero-rated supplies.
If you expect that your turnover in the next twelve months won’t exceed £1,350,000, you can join the scheme.
You must leave the scheme if your sales in the previous twelve months exceeded £1,600,000. If there’s a one-off increase in turnover that pushes you over the limit, and you expect your turnover will return to below it for the next twelve months, HMRC may allow you to stay in the scheme.
If you have to leave the cash accounting scheme, you must usually account for VAT on all of your unpaid sales invoices. However, you can opt for a six-month extension if you meet HMRC’s conditions. Take special care to avoid the common mistake of double accounting for VAT.