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HMRC internal manual

VAT Cash Accounting Scheme Manual

HM Revenue & Customs
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Cash accounting scheme: Leaving the scheme: Failure to leave the scheme at the correct time

Where a business has failed to stop using the scheme at the correct time, you should write advising the trader:

  • that they are no longer eligible to use the Cash Accounting scheme, and
  • the date they became ineligible.

You will need to consider issuing a tax assessment for the period that they should have left the scheme, and in any subsequent periods where cash accounting has been used incorrectly.

Assessing for outstanding VAT

To correct the error, you will need to

  • establish the VAT liability which the business should have declared in accordance with Regulation 64(2) in the period in which it ceased to be eligible to use the scheme, and
  • assess the period accordingly, subject to the usual assessment time limits.

For each subsequent period in which cash accounting continued to be used incorrectly, you will need to

  • calculate the liability which was properly due under the normal accounting arrangements, and
  • assess those periods accordingly.

Default interest and misdeclaration penalty will apply in accordance with normal considerations.