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HMRC internal manual

VAT Cash Accounting Scheme Manual

Cash accounting scheme: Previous changes to the scheme: Rules in force at 1 October 1987

The Regulations and conditions in Notice 731 allowed businesses to use the scheme provided that:

  • the annual value of their taxable supplies did not exceed £250K;
  • all returns including surcharges and penalties had been paid;
  • the Cash Accounting scheme had not been withdrawn in last 3 years;
  • it had not been convicted of a VAT offence in the last 3 years;
  • a compound offer had not been accepted in the last 3 years;
  • a civil evasion penalty had not been imposed in the last 3 years;
  • the business had agreed to comply with conditions set out in Notice 731;
  • HMRC had approved their application to join the scheme;
  • the business uses the scheme for the whole of its business;
  • it stayed in the scheme for 2 years (unless turnover tolerance exceeded);
  • a cash-book was kept summarising all payments made and received or other satisfactory record;
  • receipted tax invoices were issued and kept showing the date of payment;
  • the scheme was used from the beginning of a tax period; and
  • the scheme is not used for:
  • goods imported
  • goods removed from a warehouse
  • goods removed from a free zone
  • hire purchase transactions
  • conditional sale transactions, or
  • credit sale transactions

When businesses became ineligible to continue using the scheme

Businesses became ineligible to continue using the scheme:

  • if they were assessed to a compound penalty or entered into a compound settlement agreement;
  • if a civil penalty was imposed;
  • if a serious misdeclaration penalty was imposed;
  • if a penalty for regulatory offences was imposed (eg belated notification);
  • if a surcharge assessment was raised;
  • if a false statement was made on the application to join the scheme; or
  • for the protection of the revenue.

Regulations and conditions for leaving the scheme

The regulations and conditions in Notice 731 regarding leaving the scheme were:

  • businesses must notify the LVO if they left the scheme;
  • if tolerance of £312,500 was exceeded businesses must leave the scheme on the anniversary of joining it;
  • if leaving voluntarily (business must have used scheme for 2 years), the business could leave on its anniversary of entering the scheme: the business had to account for supplies and purchases made whilst on the scheme as if they were still using the cash accounting scheme;
  • if the scheme was withdrawn the business had to account for all outstanding tax on their next return;
  • if selling a business as a TOGC the transferor must tell the new owner to apply to continue using the scheme;
  • when deregistering, businesses had to account for all outstanding tax on all supplies and purchases made in the last 12 months, on their final return;
  • insolvent businesses who ceased trading, other than for the disposal of stocks and assets, had 2 months in which to account for supplies made and received during the previous 12 months.