What you need to know about VAT cash accounting and the VAT reversal charge
What is the VAT cash accounting scheme?
The Cash Accounting VAT Scheme is a way of reporting VAT when the VAT is recorded through any payments that are made or received. Much like regular cash accounting, income gets recorded when it has been received and expenses are also recorded across the period that they are paid. The scheme enables you to pay VAT on your sales when you have been paid by a customer. It also enables you to reclaim any VAT from your purchases when your supplier has been paid.
Am I eligible to use the Cash Accounting VAT Scheme?
The eligibility of this scheme is dependent on a few factors, for example, you are considered eligible if you:
o Have a business that is VAT registered.
o Your VAT estimation for the next year has a VAT taxable turnover value of £1.35 million or less.
However, if any of the following factors apply to you, you are not eligible for the VAT Cash Accounting scheme:
o You are currently using the VAT Flat Rate Scheme instead.
o Your VAT Returns and/or payments are overdue.
o You have committed a VAT offence within the last year.
The following transactions are also excluded from the Cash Accounting Scheme – for the below transactions, you must use standard VAT accounting:
o Transactions that have payment terms which are longer than six months.
o EU imported goods.
o Goods moved outside of a customer’s warehouse.
o VAT invoices that have already been raised in advance.
Should I use the Cash Accounting VAT Scheme?
It is important to consider the potential benefits and drawbacks of using this scheme and consider whether you should change your VAT reporting.
Some potential benefits of the scheme:
o Improvement of cash flow for the business as VAT is not paid until payment is received.
o Businesses are not required to pay VAT on invoices that have not been paid.
Some potential drawbacks of the scheme:
o The scheme is less likely to benefit businesses that get an instant payment or those that reclaim more VAT than you pay.
o VAT cannot be reclaimed on purchases until the supplier has been paid. (If you are a business that buys lots of stock on credit, this is a potential problem for you).
If you have any questions or queries about the VAT Cash Accounting Scheme, contact one of our accountants who can go through this information in more detail with you. (https://www.srbassociates.co.uk/contact-us)
What is the VAT Reversal Charge?
The VAT Reversal Charge is a scheme handling VAT for building and construction services across the UK. More specifically, sub-contractors require the contractor that employed them to handle and pay the VAT directly to HMRC, for the services that they have provided. The scheme now means that those providing building and construction services to customers who are VAT registered no longer account for the VAT.
Am I eligible for the VAT Reversal Charge?
This scheme is only applicable to VAT-registered businesses who are providing and receiving services that are already reported under the CIS – more simply, it is applicable to services supplied between most construction contractors and sub-contractors across the country.
You are not eligible for the scheme if you are not VAT registered or if you are an end-user, meaning a person who uses the constructed building.
The team at SRB Associates are highly skilled and extremely willing to assist your business. We are located centrally in Melton Mowbray, yet we have clients located widely across the UK. Contact us directly if you require any further information about any of the above schemes (https://www.srbassociates.co.uk/contact-us).