Glossary · Accounting
VAT cash accounting scheme
The UK VAT cash accounting scheme lets smaller businesses pay VAT when customers pay them, not when they invoice, protecting cash from late payers.
Under standard VAT accounting, you owe VAT on invoices you have issued, even if customers haven’t paid. Under the cash accounting scheme, you pay VAT on sales only when you receive payment — and reclaim VAT on purchases only when you pay for them.
A UK business can join if its estimated VAT taxable turnover for the next 12 months is £1.35 million or less, and must leave if turnover goes above £1.6 million.
For businesses with slow-paying customers, the scheme removes the cash cost of funding VAT on unpaid invoices, and makes separate bad debt relief claims largely unnecessary.
Example
A UK agency on the cash accounting scheme invoices £20,000 plus £4,000 VAT in March. The client pays in June, so the £4,000 goes on the June-quarter return instead of March’s.