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HMRC internal manual

VAT Cash Accounting Scheme Manual

Cash accounting scheme: Introduction: Background

Cash accounting is an optional scheme of accounting for VAT and was introduced on 1 October 1987. Its introduction was a deregulatory measure intended to ease the burdens on small businesses, especially those that provide extended credit to their customers. Since its introduction the scheme has undergone a variety of changes, some to simplify the scheme and others to counter abuse.

The scheme allows businesses to account for VAT on the basis of payments made and received rather than invoices issued and received and it gives automatic bad debt relief.

The scheme is an accounting scheme and, in general, does not override the basic VAT rules on supply, consideration and liability.

Policy responsibility for this scheme is with the VAT Registration and Accounting Policy team in the Indirect Tax Directorate.

This guidance should help you to make decisions without referring to policy. Any points of difficulty should, in the first instance, be referred to line management.

If you cannot resolve the case locally and need to refer to the VAT Registration and Accounting Policy team with a written submission, you need to put them in a position to make their decision based upon a full understanding of the facts.

You should submit the case following the guidance on the Indirect Tax Directorate intranet page Getting advice.