What is Cash Accounting for VAT?

The VAT cash accounting scheme allows businesses to account for VAT based on when payments are actually received and made, rather than the invoice date. This means VAT is not due to HMRC until the customer pays, which helps cash flow — particularly for businesses that extend credit to customers. The scheme is open to businesses with annual taxable turnover of £1.35 million or less; businesses must leave the scheme once turnover exceeds £1.6 million. It is most beneficial for businesses with slow-paying customers, though it means input VAT on purchases cannot be reclaimed until the business itself has paid the supplier.