subject: Cash Accounting Vat Scheme To Enhance Cash Flows Of A Business [print this page] Value added tax, Vat, UK as we all know, is an indirect sales tax levied on every stage of value addition in the manufacturing process and is charged from the end-customers.
In The standard Vat accounting scheme, a Vat registered dealer is required to pay Vat on the sale of goods and services, irrespective of the fact whether or not the consumer has made the payment. Under this, one can reclaim Vat on the invoices received even if the payment has not been made to the supplier.
However, if the dealer uses the scheme of cash accounting, he or she does not need to pay Vat until the customer has paid the Vat. In case, the customer is unable to pay, then the dealer also does not have to pay. In addition, one can reclaim Vat on one's purchases when payment is made to suppliers.
One can use this scheme if the estimated taxable turnover does not exceed 1.35 million during the next taxable year and can continue using it until taxable turnover exceeds 1.6 million. The taxable turnover for the purpose of Vat includes all the standard, reduced and zero-rated sales and any other Vat taxable supplies. It excludes Vat itself and the sales which are exempt from Vat and capital asset sales.
One cannot make use of this scheme if one is not up-to-date in making payments of Vat and submitting Vat returns. In addition, if someone is convicted on account of a Vat offence or charged penalty for Vat evasion in the previous year, then he or she would not be able to use this scheme. Also, if the Vat taxable turnover exceeds 1.35 million, then this scheme cannot be employed.
One should avoid this scheme and use standard vat accounting scheme if the purchase or sale of goods is made through lease purchase or hire purchase or if goods are exported or imported from EU member states or if goods are removed from free zone or custom warehouse.
If one is making use of cash accounting scheme of Vat, one must keep record of the cash position, debtors, and creditors in order to assess what is owed and what one owes. This can be maintained by accountants Luton. He or she also needs to keep a track of the invoices and payments. The dealer must also make timely payments of this tax and complete Vat returns within due date.
