This notice cancels and replaces Notice 731 (January 2014)
The legal basis for the cash accounting scheme is in the VAT Regulations 1995, regulations 56-65. Parts of this notice have the force of law under these regulations. These parts are indicated by being placed in a box.
The following sentence has the force of law
You cannot retrospectively apply the cash accounting scheme to your business.
1.1 What this notice is about
This notice explains how the cash accounting scheme works and the conditions you must meet if you want to use it.
Main narrative treatment—V2.199.
1.2 What's changed
Amendments to this notice are updated guidance on what to do if you disagree with a decision made by HMRC (see paragraph 6.8).
1.3 Cash accounting scheme
The scheme allows you to account for VAT (output tax) on your sales on the basis of payments you receive, rather than on tax invoices you issue. This is different from the normal rules that require you to account for VAT on your sales when you issue a VAT invoice, even if your customer has not paid you.
However, if you choose to use the scheme, you can only reclaim the VAT incurred on your purchases (input tax) once you pay your supplier. Under the normal method of accounting for VAT you can reclaim VAT on purchases you make as soon as you receive a VAT invoice even if you have not paid your supplier.
1.4 How the scheme can help your business
The scheme could help your cash flow, because in general