What is the VAT Cash Accounting Scheme?
The VAT Cash Accounting Scheme allows eligible businesses to account for VAT based on the date payment is received or made, rather than the date an invoice is issued. This means output VAT is only due once a customer has actually paid, and input VAT can only be reclaimed once a supplier has been paid. It can help smaller businesses manage cash flow, particularly where customers pay slowly or invoices are on extended credit terms.
Eligibility and how it differs from standard VAT accounting
Businesses with taxable turnover below a set threshold can generally join without prior approval from HMRC. This contrasts with standard, invoice-based VAT accounting, where output VAT becomes due when an invoice is raised regardless of whether the customer has paid. The cash accounting scheme is not suitable for every business, particularly those that regularly reclaim more input VAT than they charge in output VAT, since it can delay VAT refunds.
Related terms: VAT, VAT Return, VAT Flat Rate Scheme, VAT Registration
VAT rules depend on the nature of transactions and individual circumstances. This glossary provides general information and is not personalised tax advice.