Quick VAT Cash Flow Question

[pmanson]

Say I sell £3000 worth of goods in January and give 30 days credit.

The VAT is £525, when do I put this on my cash flow? In the invoice month (January) or in the month when the money is received (February)?


Thanks,

Phill

[vex]

iirc it depends on how you have set up your VAT with the tax man.

You can either do it on invoice date, great if you have the cash flow to be able to take the hit at VAT return time.

Or (as I do) do it on CASH PAID, but this does have to be set up with the tax man, we now only pay the VAT on the items we have been paid for or have paid for. The rest is deffered untill the money is received.

Your accountant, or the army of them here, should be able to advise / confirm this.

Chris

>> Edited by vex on Thursday 23 February 10:37

[touchingcloth]

Default, as Vex says, is always based on the invoice date for VAT purposes. You can apply for cash accounting to pay it only when the invoice has been settled (nice if you have a lot of bad debt because you don't have to raise a credit notes etc later). However the flip side is, I believe, that you can also only offset invoices that you also have actually paid, with the default system you can claim back VAT on an invoice that you have received but not paid out for yet which can be equally beneficial.

[Eric Mc]

Many businesses opt for "Cash Accounting" as it relieves the problem of paying VAT to the VAT man on unreceived sales amounts.

The main problem is, as already stated, the fact that you can only claim back the Input VAT on expenses and costs that were actually PAID in the relevant VAT quarter.

The definition of "paid" is not as straightforward as you might think. It does not actually mean that the bill was physically paid by cheque or cash. Paying the bill by credit card counts as "paid", even if the credit card bill itself has not yet been settled. Items cleared by contras or other forms of offset arrangement are also deemed to have been paid, even if no cash or cheques ever changed hands.

[Smartie]

also you no longer have to apply for cash accounting, you can just start doing it, unless your turnover is over the limit, which is about £600K.