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VAT Schemes


There are several VAT schemes which have been introduced to make the administration and general burden of accounting for the tax easier for smaller businesses.

Overall, they are not designed to reduce the amount of VAT which is paid to Customs and Revenue, their purpose is merely to make the calculation and amounts and the submission of returns more straight forward and less cumbersome.

Cash Accounting VAT Scheme

The cash accounting scheme was introduced to help smaller businesses with their finances and to prevent them having to pay over VAT to Revenue and Customs without having first received the proceeds of sales from their customers.

VAT on a sale is usually accounted for at the earliest date of:

  • When the goods or services were supplied
  • When an invoice is raised
  • When payment is received

New businesses are often prone to having to offer extended credit terms to their customers in order to gain their trade.

Thus, it could be many months after the provision of the service and the payment of relevant amounts to HMRC that the customer actually remits the money to the company.

This could result in acute financial problems for that business.

The cash accounting scheme allows businesses with turnover below a certain level to account for it VAT on a receipts basis.

Thus, in cases where customers take extended credit, the tax on these sales will not have to be remitted to Revenue and Customs until the money has been received.

Annual Accounting VAT scheme

The annual accounting scheme permits businesses to submit VAT returns once a year. This is opposed to the normal frequency of every three months which is applicable to most companies by default.

This is designed to relieve some of the administrative effort needed to maintain and run a scheme.

With annual accounting scheme, estimated payments are made usually on a monthly basis. At the end of the year when the VAT calculation is completed, the different between the on account amounts and the sum which is actually due is compared.

The difference is then paid if there has been and underpayment or repaid if excess payments have been made over the twelve month period.

Flat Rate and Retail VAT schemes

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