Definition of VAT cash accounting

Under the VAT cash accounting scheme businesses account for VAT on the basis of payments received and made, rather than on invoices issued and received. Whether or not this is advantageous will depend on the timing of the relevant cash flows. The scheme will effectively give automatic relief for bad debts.

The scheme is open to businesses with an annual turnover of up to £1.35m that meet certain other conditions. A business already using the scheme can continue to do so until its annual taxable turnover reaches £1.6m.   [1]

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