Operating the cash accounting scheme

Produced by Tolley

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Operating the cash accounting scheme
  • Starting to use the cash accounting scheme
  • New VAT registrations
  • Record keeping
  • Cash payments
  • Cash book
  • Accounting for output VAT
  • Reclaiming input VAT
  • Partial exemption
  • Completing a VAT return
  • More...

Operating the cash accounting scheme

This guidance note provides an overview of how to operate the cash accounting scheme. This note should be read in conjunction with the Overview of cash accounting scheme guidance.

Starting to use the cash accounting scheme

It 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 Overview of cash accounting 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 registrations

Businesses 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):

  1. stock

  2. machinery

  3. tools

  4. capital equipment

  5. office furniture and other fixtures and fittings

Businesses using the cash accounting scheme must use the following procedure to recover the VAT incurred:

  1. if the business has already paid for the qualifying goods / services purchased before it VAT registers then it should recover the VAT on its first VAT return (subject to the normal rules relating to pre-registration input tax – see Claiming input tax)

  2. if the goods / services are paid for after the business has VAT registered, then it should recover the VAT incurred on the return covering the period in which the business paid for them

Record keeping

This section provides details of the additional books and records

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