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HMRC internal manual

VAT Cash Accounting Scheme Manual

Cash accounting scheme: Entering the scheme: Transactions excluded from the scheme

Regulation 58(2) requires businesses using the scheme to exclude specific transactions from the scheme. The normal tax point rules will apply to those transactions and accounting for tax will not be deferred. Such supplies must be accounted for in the normal way and dealt with outside the Cash Accounting scheme.

58(2) The scheme shall not apply to -

(a) lease purchase agreements;

(b) hire purchase agreements;

(c) conditional sale agreements;

(d) credit sale agreements;

(e) supplies where a VAT invoice is issued and full payment of the amount shown on the invoice is not due for a period in excess of 6 months from the date of the issue of the invoice;

(f) supplies of goods or services in respect of which a VAT invoice is issued in advance of the delivery or making available of the goods or the performance of the services as the case may be; or

(g) supplies of goods or services in respect of which it is for the recipient, on the supplier’s behalf, to account for and pay the VAT.

58(3) Sub-paragraph (2)(f) above shall not apply where goods have been delivered or made available in part or where services have been performed in part and the VAT invoice in question relates solely to that part of the goods which have been delivered or made available or that part of the services which have been performed.

Credit sales, conditional sales, HP and lease purchase transactions

Regulations 58(2)(a)-(d) exclude these transactions from the scheme. Small businesses will normally be the recipients of such supplies and they are excluded to ensure that cash accounting businesses purchasing business assets are not put at a competitive disadvantage.

Supplies where payment is not due for more than 6 months after issue of the invoice

Regulation 58(2)(e) was introduced, in stages, to counter manipulations where invoices were issued by cash accounting businesses many years in advance of the supply being made.

VCAS1000 of this guidance sets out the original rules and conditions for the scheme and how and when they were changed.

The Regulation refers to supplies where payment is not due. Cash accounters who issue or receive such invoices must account for output tax and input tax on them using the normal accounting rules. They must not delay accounting until payment is made or received. If a cash accounter has failed to account for such purchases and supplies outside the scheme, it may be appropriate to issue an assessment. Remember, when calculating the tax due, to take into consideration invoices received and issued by the business which meet the exclusion criteria.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

If on a backward look it is established that a cash accounting trader failed to pay or receive payment for an invoice over 6 months old, and payment was genuinely due within six months of its issue, there is no requirement for them to account for outstanding tax on the supplies to which the invoice relates.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000) VCAS4400(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Supplies of goods or services invoiced in advance

Regulation 58(2)(f) was introduced with effect from 3 July 1997 to counter manipulations where goods and services were “outsourced”. For example, a company would undertake to provide “outsourced” supplies and issue invoices in advance for supplies the total amount of which kept the business below the turnover limit for joining the scheme. The recipient of the proposed supplies would account for VAT under normal accounting rules. This situation generated an input tax claim by the non-cash-accounting business and in most cases little or no output tax was accounted for by the cash-accounting business. The exclusion is necessary to prevent further abuse of the scheme.

The exclusion does not extend to invoices issued in advance for goods that have been delivered or made available in part, or where services have been performed in part - Regulation 58(3) refers.

Imports, exports, EC acquisitions and EC despatches

These supplies have been excluded from the scheme since its inception. Their exclusion is not in the Regulations but is a condition detailed in Notice 731 Cash accounting (GOV.UK). See VCAS3100 for further details.