Andrew Needham looks at what a business needs to do when it leaves the cash accounting scheme.
If a business’s turnover is less than £1,350,000 a year, it can use the cash accounting scheme without obtaining permission from HMRC or filling in any forms.
Cash accounting is designed to improve the cashflow for small businesses. It shifts the tax point from invoice date to payment date for both purchases and sales. This means that businesses do not have to pay the VAT over to HMRC before they have been paid, therefore improving cashflow and giving built-in bad debt relief.
Leaving cash accounting
When a business’s turnover exceeds £1,625,000, it must leave the scheme; or it can leave of its own choice at any time.
When it leaves cash accounting, the business must account for all the VAT included on
