Cash Accounting Scheme
Tertiary legislation about the VAT Cash Accounting Scheme (originally published in VAT Notice 731).
This contains the legislation relating to the VAT Cash Accounting Scheme. This legislation has force of law under the The Value Added Tax Regulations 1995 and was originally published within VAT Notice 731.
You cannot retrospectively apply the Cash Accounting Scheme to your business.
2.1 Using the scheme for all aspects of your business
Depending on the exceptions you must use the Cash Accounting Scheme for the whole of your VAT-registered business.
2.2 How to start to use the Cash Accounting Scheme
You cannot retrospectively apply the Cash Accounting Scheme to your business.
You must, from the date you start to use the scheme, identify and separate in your records any payments you receive or make for transactions already accounted for under the normal method of VAT accounting. Exclude such payments from your scheme records.
2.3 How to calculate your VAT due if you’re a new VAT registration
If you have already paid for the qualifying goods and services, reclaim the VAT as though it was input tax on your first VAT Return.
If you pay for the goods or services after you have registered for VAT, claim the VAT, as though it was input tax, in the tax period in which you pay for them.
2.4 Other records to keep
In order to operate the Cash Accounting Scheme, your records must clearly cross-refer payments:
- received by you, or on your behalf, to your corresponding sales invoice
- made by you to the corresponding purchase invoice
- made or received to the normal commercial evidence, such as bank statements, cheque stubs, paying-in slips
2.5 When to account for the VAT on your sales
If you are paid by credit or debit card: you receive payment on the date you make out a sales voucher for the payment (not when you actually receive payment from the card provider).
If the credit or debit card payment is not honoured, then you do not have to account for the VAT. If you have already accounted for the VAT you can adjust your VAT account, or make a refund claim in line with How to correct VAT errors and make adjustments or claims (VAT Notice 700/45). If you later receive a payment for the supply, then you must account for the VAT due on that payment.
If you are paid by cheque: you receive payment on the date you receive the cheque, or the date on the cheque, whichever is later.
If the cheque is not honoured, then you do not have to account for the VAT. If you have already accounted for the VAT you can adjust your VAT account, or make a refund claim in line with How to correct VAT errors and make adjustments or claims (VAT Notice 700/45). If you later receive a payment for the supply, then you must account for the VAT due on that payment.
2.6 When to reclaim VAT charged on your purchases and expenses
If you pay by credit or debit card: the date of payment is the date a sales voucher is made out for the payment.
If you pay by cheque: the date of payment is the date you send the cheque, or the date on the cheque, whichever is later. If your cheque is not honoured, you cannot reclaim the VAT. If you have already accounted for the VAT you should adjust your VAT account, or make a voluntary disclosure in line with How to correct VAT errors and make adjustments or claims (VAT Notice 700/45).
2.7 Payments collected by agents on your behalf
If an agent collects payments on your behalf, you must account for VAT on the supply in the VAT period in which your agent collects payment from your customer.
2.8 Factoring
Recourse agreements (that is where you remain responsible for bearing any loss resulting from an unpaid debt)
If you have assigned to a factor a debt in respect of a taxable supply you have made while using the Cash Accounting Scheme, you must account for output tax on the supply in the VAT period in which your factor collects payment from your customer.
2.9 Selling debts
If you sell a debt for a taxable supply you made while using the Cash Accounting Scheme, you must account for VAT on the supply in the VAT period in which the debt is sold.
2.10 Imports and acquisitions
You cannot use the Cash Accounting Scheme for goods you import, acquire from a business registered in an EU member state or remove from a customs warehouse or free zone.
2.11 Part payments
You must allocate the payment to the invoices in the order in which you issue or receive them if you make or receive payments which:
- are a partial payment of an invoice
- cover more than one invoice
- relate to an invoice for supplies at different rates of tax
Where you make or receive partial payment of an invoice and VAT is not identified separately you must treat the payment as VAT inclusive. Where you make or receive payments which relate to an invoice for supplies at different rates of tax you must apportion the amount paid or received between the different rates and treat the amounts on which VAT is due at the standard or lower rate as VAT inclusive.
2.12 Payments received net of deductions
If you receive a net payment you must account for VAT on the full value of taxable supplies made by you before such deductions. This will usually be the value shown on your VAT invoice, you do not include any amounts that are for supplies that do not attract VAT.
2.13 If you want to leave the scheme
You can only leave the scheme at the end of a tax period.
2.14 If your business becomes insolvent
If the office holder does continue to use the Cash Accounting Scheme they must, from the date of insolvency, separate in the business records any payments the business receives or makes for transactions already accounted for on the pre-insolvency VAT Return.
2.15 If you sell or buy as a going concern a business which is using the scheme and the VAT registration number has been transferred
If you sell your business as a going concern and the new owner takes over your VAT registration number, you must advise the new owner that you are using the Cash Accounting Scheme.