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HMRC internal manual

VAT Cash Accounting Scheme Manual

Cash accounting scheme: Exceeding the tolerance: Rules prior to 1 April 2007

Regulation 60 determines when a business has to leave the scheme on the grounds of increased turnover. It states:

60(1) Without prejudice to regulation 64 below, a person shall withdraw from the scheme immediately at the end of a prescribed accounting period of his if the value of taxable supplies made by him in the period of one year ending at the end of the prescribed accounting period in question has exceeded £825,000.

(2) Subject to regulations 61 to 63 below a person may withdraw from the scheme at the end of any prescribed accounting period.

(3) The requirements in paragraph (1) above shall not apply where the Commissioners allow or direct otherwise.

As soon as the taxable supplies of a business exceeded the tolerance limit of £825,000, it was required to leave the scheme in the period in which it exceeded the tolerance limit. Any outstanding VAT incurred while using cash accounting had to be accounted for in the period in which the business left the scheme.