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Which is best for VAT - Cash or Invoice based Accounting?#AskAMS

Comparison of benefits of each scenario when using Cash or Invoice based accounting.

Cash accounting schemes – advantages for small/simple businesses:

1. You only account for VAT on sales in the VAT quarter in which you are paid (rather than the VAT quarter you are invoiced) – because you pay your VAT to HMRC a bit later;

2. If you have simple bookkeeping records and cash expenses it is easy to extract the figures for your VAT returns without needing to keep separate sales/purchase ledger records.

3. If a customer fails to pay, you don’t have to pay VAT on the sale to HMRC (on an invoice basis you have to pay VAT on sales - even if you never get paid – and recover the VAT from HMRC only once the debt is over 6 months late).

Invoice based VAT accounting - advantages for this accounting method:

1. If your customers pay you quickly, but you are given credit by your suppliers, then there can be a cash flow advantage to using the invoice basis for VAT.

2. If you already run a Sales Ledger and a Purchase Ledger through your bookkeeping system, then it is not really an extra complication to calculate VAT on the invoice basis.

AMS Accountancy Swindon and Wiltshire

AMS Accountancy Ltd

AMS Accountants in Swindon provide a complete accountancy service for small businesses in Wiltshire and a monthly accountancy service for contractors throughout the UK.

Delta 606, Welton Road, Swindon, SN5 7XF

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