Cash accounting scheme ― overview

Produced by a Tolley Value Added Tax expert

Value Added Tax

Guidance

This guidance note provides an overview of the cash accounting scheme.

See also De Voil Indirect Tax Service V2.199.

What is the cash accounting scheme?

The cash accounting scheme is an optional method of VAT accounting whereby VAT is recorded on the basis of payments made and received. This differs from the normal rules where businesses use invoices as the basis for paying VAT to and recovering VAT from HMRC.

Using cash accounting can be beneficial to a business in terms of cash flow as it will not be required to pay VAT to HMRC on sales until the customer has actually paid for the goods / services supplied. Using the scheme will be most beneficial for businesses that offer customers extended payment terms or suffer significant bad debts. The scheme is aimed at smaller businesses and there are turnover limits that determine if a business is eligible to choose to use the scheme.

The scheme will not benefit businesses

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