VCAS6150 - Cash accounting scheme: Leaving the scheme: Discretionary removals from the scheme

Removal for the protection of the revenue

VCAS4050 gives guidance on the use of this power where the scheme has been manipulated. The following sub-paragraphs detail some additional circumstances in which you may wish to consider the use of the power. The Commissioners are accountable for using the power reasonably, and you must always consider the particular circumstances of the trader before exercising the power in accordance with the following guidance.

Businesses that default on time to pay arrangements

As a general rule, businesses should be withdrawn from the scheme if they default on time to pay arrangements on two occasions. Upon notification of the second default, the business should be withdrawn from the scheme with effect from the end of their current tax period.

Businesses which incur a penalty (other than a civil evasion penalty) or a surcharge

Businesses may continue to use the cash accounting scheme despite incurring a penalty (other than a civil evasion penalty) or a surcharge. This change was introduced in 1997 to assist control and compliance by helping small businesses experiencing temporary difficulties to meet their VAT obligations.

However, where penalties or default surcharge are consistently incurred, HMRC may, under Regulation 64(1)(d), still withdraw entitlement to continue to use the scheme in order to protect the revenue. In such cases, withdraw use of the scheme with effect from the end of the business’s current tax period.

Businesses that claim input tax before making payment

Businesses using the scheme that claim input tax before they are entitled to may continue to use the scheme provided that you are satisfied that a business has made a genuine mistake. An assessment may be made for the tax incorrectly claimed early under the scheme.

If input tax has consistently been claimed too early, you may consider that the business has not actually been using the cash accounting scheme.

In such cases you may assess for the output tax still outstanding under the normal tax point rules.