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HMRC internal manual

VAT Cash Accounting Scheme Manual

Cash accounting scheme: Entering the scheme: Starting to use the scheme

Businesses who wish to use the scheme must do so from the beginning of a tax period as per Regulation 58(1).

The scheme must be used for the whole of the business conducted by the taxable person, although there are certain transactions that are specifically excluded from the scheme. This means that a business using cash accounting must account for all of their taxable transactions under the scheme unless the law requires them to do otherwise. VCAS2200 lists the transactions that must be excluded from the scheme.

Changing from normal accounting to VCAS

If a business which was previously accounting normally starts to use the scheme, it must separate in its records any payments it receives or makes for transactions already accounted for under the normal method of accounting.

Newly registered businesses using VCAS from their EDR

A newly registered business that starts to use cash accounting from their EDR must not account for VAT on any payments it receives for supplies it made before its EDR, as these were not chargeable supplies.

Such businesses may claim relief for pre-registration supplies under the normal rules set out in Notice 700 The VAT guide (GOV.UK). It is not a pre-requisite of such relief that pre-registration supplies should have been paid for. If such a claim is made, there is a danger of double deduction when payment is made once cash accounting has commenced, and this risk should be addressed in any assurance of the business’s activities.