View the related Tax Guidance about Cash accounting scheme
Operating the cash accounting scheme
Operating the cash accounting schemeThis guidance note provides an overview of how to operate the cash accounting scheme. This note should be read in conjunction with the Cash Accounting Scheme ― eligibility, joining and leaving the scheme guidance.Starting to use the cash accounting schemeIt should be noted that a business cannot retrospectively apply the cash accounting scheme. If a business is already VAT registered and is using normal VAT accounting methods, it can elect to use cash accounting from the start of a new VAT return period. The business must ensure that it meets all of the relevant conditions before commencing with using the scheme. Please see the Cash Accounting Scheme ― eligibility, joining and leaving the scheme guidance note for more information on the scheme requirements. Businesses wishing to use the scheme must identify and separate supplies that have already been made or received, where VAT has already been accounted for or recovered on. Only supplies made or received where no VAT has been accounted for should be included in the cash accounting scheme books and records. New VAT registrationsBusinesses using the scheme from the first date of VAT registration may be eligible to recover VAT incurred on certain purchases made prior to the date of registration.For example a business may have incurred VAT on (this list is not exhaustive):•stock•machinery•tools•capital equipment•office furniture and other fixtures and fittingsBusinesses using the cash accounting scheme must use the following procedure to recover the VAT incurred:•if
Cash accounting scheme ― eligibility, joining and leaving the scheme
Cash accounting scheme ― eligibility, joining and leaving the schemeThis guidance note provides an overview of the main principles concerning the cash accounting scheme. This note should be read in conjunction with the Operating the cash accounting scheme guidance note. What is cash accounting?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 in the following circumstances:•if the customers normally pay at the time that the goods / services are supplied (ie retailers, etc)•where the business is normally in a VAT repayment situation so VAT is reclaimed from HMRC each quarter•where continuous supplies of services are providedIf a business has opted to use the scheme and discovers that it is not beneficial, it can elect to go back to normal VAT accounting, based
VAT review ― registration and compliance
VAT review ― registration and complianceThis guidance note is intended to provide more detail on areas to consider during a VAT review which relate to general compliance. This document should be used in conjunction with the Checklist ― VAT review when undertaking the actual review in order to ensure that all relevant items have been covered.Whilst this guidance and associated checklist have been prepared to seek to cover the common issues and risks which might arise, care should be taken to ensure that any specific business or sector issues are considered as part of a comprehensive review.VAT returns and compliance ― return and payment deadlinesA typical starting point when undertaking a VAT review or due diligence exercise is to confirm whether all VAT returns and payments have been made on time. The VAT return and any payment due must reach HMRC by the due date stated on the return. For a normal return, this will be:•no later than one month after the end of the VAT return period, and•no later than one month after the effective date for cancellation of registration (or, in the case of a business that had failed to register, one month after the date when liability to be registered ceases)Businesses can check the payment deadline using the payment deadline calculator provided by HMRC.If during the course of a VAT review it is identified that returns or payments have been made late, the next step will be to confirm whether the business has
Annual accounting scheme (AAS) ― eligibility, joining and leaving the scheme
Annual accounting scheme (AAS) ― eligibility, joining and leaving the schemeThis guidance note provides an overview of the main principles regarding the annual accounting scheme. It should be read in conjunction with the Annual accounting scheme (AAS) ― operating the scheme guidance note. AAS ― main principlesThe annual accounting scheme enables qualifying businesses to submit one VAT return each year. The business will need to pay its annual VAT liability via nine monthly or three quarterly instalments during the tax year. The payments must be made by either direct debit, standing order or another form of electronic payment.When a business joins the scheme, HMRC will calculate the instalment amount and due date. If the business disagrees with the amount calculated or the business activities change, it should write to HMRC to request that the value of the instalments is amended (see below for contact details).Businesses are entitled to make additional voluntary contributions towards their annual VAT liability if desirable.At the end of the tax year, the business will need to submit a VAT return together with any balancing payment due.AAS ― scheme advantagesThe following are the main benefits:•provides certainty in terms of cash flow as the business knows what VAT needs to be paid via instalments during the tax year•additional payments can be made if the business is aware that it may have to make a larger payment at the end of the year•only one VAT return needs to be submitted each year•businesses have two
Cancelling a VAT registration number
Cancelling a VAT registration numberThis guidance note provides:•guidance regarding when a person must deregister from VAT on a compulsory basis•guidance regarding when a person can deregister from VAT on a voluntary basis•practical points to consider in relation to the cancellation of a VAT registrationFor in-depth commentary on VAT deregistration please refer to De Voil Indirect Tax Service V2.151 to V2.155.When must a person deregister from VAT on a compulsory basis?The VAT registration ― voluntary guidance note explains when a person is entitled to be registered for VAT. A person who is registered for VAT and ceases to be entitled to be registered must notify HMRC within 30 days from the date they ceased to be entitled to be registered. HMRC can cancel the registration of a person who has ceased to be entitled to be registered for VAT, even if the person has not notified HMRC. A failure to notify HMRC may result in a penalty. If the reason the person is no longer entitled to be registered is because they have transferred their business as a going concern the VAT registration number may, subject to the agreement of the person acquiring the business and HMRC, be transferred to the person acquiring the business. The request for the VAT registration number to be transferred should be submitted to HMRC using the form VAT68. In all other circumstances the VAT registration number must be cancelled, although HMRC may agree to a request for the deregistration to be
VAT registration ― procedure
VAT registration ― procedureThis guidance note provides information relating to the VAT registration procedure for persons established in the UK and includes:•points to consider when choosing the most appropriate date for the VAT registration to take effect•guidance regarding accounting for VAT from the date registration takes effect•points to consider when dealing with a late registrationFor information regarding VAT registration in the UK for non-established taxable persons (NETPs), please refer to the Overseas business ― registering for VAT in the UK guidance note. An NETP is any person who is not normally resident in the UK, does not have a UK establishment and, in the case of a company, is not incorporated in the UK.For information regarding the conditions for recovering VAT on costs incurred prior to the date of registration, please refer to the Input tax ― pre-registration, pre-incorporation and post-registration guidance note.Although most applications to register for VAT can (and indeed must) be completed online, professional advice and assistance can add significant value, for example in relation to:•choosing the most appropriate date for the VAT registration to take effect•whether monthly VAT accounting may be appropriate if regular VAT repayments are anticipated•advising on the most appropriate way to account for VAT from the date of registrationVAT registration ― how to register; Register for VATThe HMRC online VAT registration service is generally quicker than applying by paper, particularly if the application can be processed without the need for manual intervention by HMRC. HMRC expects
Cash accounting scheme ― overview
Cash accounting scheme ― overviewThis 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 in the following circumstances:•if the customers normally pay at the time that the goods / services are supplied (ie retailers, etc)•where the business is normally in a VAT repayment situation so VAT is reclaimed from HMRC each quarter•where continuous supplies of services are providedIf a business has opted to use the scheme and discovers that it is not beneficial, it can elect to
Imports ― postponed accounting for import VAT
Imports ― postponed accounting for import VATThis guidance note looks at when a business is entitled to account for import VAT under postponed accounting.For importing goods from outside the UK generally, see the Imports ― overview (rules from 1 January 2021) guidance note. For movements of goods and Northern Ireland, see the Northern Ireland ― overview guidance note.In-depth commentary on the legislation and case law can be found in De Voil Indirect Tax Service V3.305.What is postponed accounting?Postponed accounting is designed to address the cash flow issues that would arise for many businesses if they were obliged to pay import VAT at the point that they import goods into the UK.In essence, postponed accounting allows a business to account for import VAT via its VAT return rather than at the point that goods come into the UK. If a business is entitled to full VAT recovery, this is effectively an administrative entry; the import VAT is accounted for but it is immediately recovered on the same VAT return. Consequently, a cash flow cost is avoided.When can postponed accounting be used?Postponed accounting was introduced from the end of the Brexit implementation period, so from 1 January 2021. VAT-registered businesses can account for import VAT under postponed accounting (without a requirement for authorisation of any kind) where:•goods are imported for use in the business•the business includes its VAT registration number on its customs declarationSI 2019/60, regs 2, 3; Check when you can account for import VAT on your VAT
Land and buildings ― building work ― invoices and authenticated receipts
Land and buildings ― building work ― invoices and authenticated receiptsThis guidance note provides information on invoices and authenticated receipts for building work.Detailed commentary on invoices and authenticated receipts is included in De Voil Indirect Tax Service V3.511 to V3.529.Summary of points to considerThe table below provides a summary of points to consider when an invoice or authenticated receipt is issued or received in relation to building work.Points to considerRelevant sections of this guidance noteWhere was the building work carried out?Place of supplyWhen was the building work carried out?Time of supplyDoes the tax point anti-avoidance rule apply?Tax point anti-avoidance ruleWhich party is responsible for accounting for any VAT due on the supply?Reverse chargeWill an invoice or an authenticated receipt be issued?Invoice or authenticated receiptWill a self-billed invoice be issued?Self-billingWhat rate of VAT should be applied?Applying the correct VAT treatmentWho carried out the building work?Self-supplyPlace of supplyBuilding work that is carried out in the UK, including on sites within the territorial sea of the UK, is within the scope of UK VAT regardless of where in the world the supplier of the construction services belongs. It may be necessary for a VAT registered recipient of a supply of construction services to apply a procedure known as the reverse charge and account for any VAT due on the supply. For more information on the reverse charge, please refer to the ‘Reverse charge’ section of this guidance note. Building work that is carried out on sites
General principles of VAT
General principles of VATThis guidance note provides an overview of the general principles of UK VAT. For information about VAT outside the UK, see the VAT in the EU and VAT outside the EU guidance notes.What is VAT?Value added tax (VAT) is a tax on consumer expenditure and is collected on business transactions and imports. The basic principle is to charge VAT at each stage in the supply of goods and services (output tax). If the customer is registered for VAT and uses the supplies for business purposes, they will receive credit for this VAT (input tax). The broad effect is that businesses are not affected and VAT is actually borne by the final consumer.VAT legislation and HMRC interpretationVAT was introduced in the UK on 1 April 1973 by the Finance Act 1972. Successive Finance Acts have made amendments to the law which have also been consolidated, first by the Value Added Tax Act 1983 (VATA 1983) and subsequently by the Value Added Tax Act 1994 (VATA 1994). VATA 1994 is generally the starting point for reviewing VAT law, as this contains the bulk of the relevant law and many references to this will be found throughout Tolley Guidance.The Acts provide the framework of the tax but much of the detail is to be found in statutory instruments, either in the form of Orders made by the Treasury or Regulations made by HMRC. The Government has empowered HMRC to manage this tax.HMRC issues explanatory notices on VAT, together with
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