VAT - Cash Basis

Cash Receipts Basis of accounting for VAT

Practitioners will recall that last July the annual turnover threshold for eligibility for the cash receipts basis was increased from £250,000 to £500,000. There is a cash flow benefit to be obtained by qualifying traders in changing to a cash receipts basis of accounting for VAT.

Some practitioners have expressed concern that, at the time of changing to the cash receipts basis, a trader might be obliged to account for VAT twice in relation to the same supply - initially during the taxable period when the invoice issues and subsequently in a later taxable period when payment is received. This is not correct. Where VAT in relation to a supply has already been accounted for prior to authorisation to use the cash basis, no further liability arises when payment is subsequently received. (Section 14(1A)(b) of the VAT Act refers).

Practitioners dealing with clients who wish to change to the cash receipts basis should notify their local tax office giving details of their turnover for the last twelve months and an estimate of their likely turnover for the next twelve months.