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HMRC internal manual

VAT Cash Accounting Scheme Manual

Cash accounting scheme: Exceeding the tolerance: Rules prior to 31 July 1997

Regulation 60(2) determined when a business had to leave the scheme on the grounds of increased turnover. It stated that:

60(2) A person may, subject to regulation 64, remain in the scheme unless at the end of one of his prescribed accounting periods the value of taxable supplies made by him in a period of one year then ending has exceeded £437,500 and the value of the taxable supplies made by him in the period of one year then beginning has exceeded £350,000, in which case he shall cease to operate the scheme with effect from the end of the second mentioned period of one year.

As soon as the taxable supplies of a business exceeded the tolerance limit of £437,500, it was required to monitor its taxable turnover for the following 12 months. If the turnover exceeded £350,000 during the 12 month monitoring period, the business had to leave the cash accounting scheme at the end of the monitoring period. If the business’s taxable supplies did not exceed £350,000 during the monitoring period, they were able to continue using the cash accounting scheme.

Those businesses who were monitoring their turnover when the new rules came into force on 3 July 1997 had to apply the new rules afresh to their business to see if they had to come off the scheme. This meant that at the end of their next tax period after 3 July 1997 they had to review their taxable turnover in the 12 months then ending, and if they had exceeded the tolerance limit they were required to leave the scheme and account for all outstanding tax. If their turnover had fallen back below the tolerance limit they were be able to stay on the scheme.