VAT: Changes to the Cash Accounting Scheme

This Revenue & Customs Brief explains changes to the Cash Accounting Scheme which will take effect from 1 April 2007.

The changes are:

• The annual turnover limit below which businesses can start to use the scheme, will increase from £660,000 to £1.35 million.
• The annual turnover limit above which businesses must leave the scheme, will increase from £825,000 to £1.6 million.

The scheme allows eligible businesses to account for and pay VAT to HMRC only when they receive payment from their customers. A condition of this treatment is that users of the scheme can only recover VAT on purchases when they pay their suppliers.

For most businesses the scheme offers a cash flow benefit and provides automatic relief from VAT on bad debts without the need to apply for Bad Debt Relief.

Issued 9 February 2007.