Using the VAT Cash Accounting Scheme

Struggling with late-paying customers? The VAT Cash Accounting Scheme helps protect cash flow by taxing only what you have received.

The VAT Cash Accounting Scheme is designed to support businesses by improving cash flow. Using this scheme means that VAT is only paid when your customer pays you and not when you issue an invoice. This means that if a customer fails to pay, the VAT is not payable to HMRC, offering a clear advantage for businesses that sell on credit.

In contrast, under standard VAT accounting, VAT is due whether or not you've been paid, which can create financial pressure if your customer is late in paying or does not pay.

To join the scheme, a business must have a VAT taxable turnover of £1.35 million or less in the next 12 months. Once in the scheme, a business can continue using it until their turnover exceeds £1.6 million.

You cannot use the Cash Accounting Scheme if:

• You are behind on VAT returns or payments.
• You have committed a VAT offence in the last 12 months.
• You are using the Flat Rate Scheme, which has its own method for handling VAT on a cash basis.

There’s no formal application required. You can start using the scheme:

• At the beginning of any VAT accounting period, or
• From the start of VAT registration, if you’re newly registered.

You can leave the scheme voluntarily at the end of any VAT period without notifying HMRC and rejoin again if you continue to meet the eligibility criteria.