VAT cash accounting

Definition

The VAT cash accounting scheme lets eligible smaller businesses account for VAT on the basis of when they are actually paid and pay their suppliers, rather than when invoices are raised. It can significantly help cash flow, because you do not pay VAT on a sale until the customer has paid you.

In plain terms

Under standard VAT accounting you may owe HMRC the VAT on an invoice before the customer has paid it. Cash accounting removes that strain — you hand over the VAT only once the cash is in — which is a real benefit for businesses with slow payers.

Why it matters

For a business under the eligibility threshold with late-paying customers, cash accounting eases a genuine cash pinch. See flat-rate VAT scheme.