A business can join the scheme if it expects that taxable turnover in the next 12 months will not exceed £1,350,000. Additionally, it has to fulfil the following:
- is up to date with VAT returns
- has paid over all VAT due or agreed a basis for settling any outstanding amount in instalments
- has not been convicted of any VAT offences in the previous year
All standard and zero-rated supplies count towards the £1,350,000 limit. Exception are the anticipated sales of capital assets previously used within the business. Exempt supplies are not included.
When a business joins the cash accounting scheme, it must take care not to account again for VAT on any amounts already dealt with previously on the basis of invoices issued and received.
A business can start using the scheme without informing HMRC. The scheme does not cover:
- goods bought or sold under lease or hire-purchase agreements
- goods bought or sold under credit sale or conditional sale agreements
- supplies invoiced where full payment is not due within six months
- supplies invoiced in advance of delivering the goods or performing the services
When the annual turnover reaches £1,600,000, the business must leave the scheme immediately. After leaving the scheme, VAT is due on all supplies on which it has not already been accounted for. However, for a further six months after leaving the scheme, the outstanding VAT can be accounted for on a cash basis.