Commentary

V7.197 Cash accounting scheme—input tax

Part V7 Tax planning
Part V7 Tax planning | Commentary

V7.197 Cash accounting scheme—input tax

Part V7 Tax planning | Commentary

V7.197 Cash accounting scheme—input tax

The main principle of the cash accounting scheme is to base VAT payments on cash book accounting rather than on a day book basis. This principle applies to input tax as well as output tax, meaning that input tax can only be reclaimed when a purchase invoice has been paid to a supplier.

In effect, the input tax rule means that the cash accounting scheme will be unsuitable for some businesses – or it may be suitable for some businesses in the future, but not at the current time. See Examples 2 and 3.

Example 2

John trades

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