1. Under the VAT Cash accounting scheme
you have to charge VAT to your customers if law requires it. If
you’re not sure if law requires you to charge VAT, assume
you have to. VAT is presently charged at 17.5% of the total value
of your sales unless it includes items on which VAT doesn’t
have to be charged. Appendix 1 to this book deals with the items
that don’t need to have VAT charged on them.
2. When your customer pays you they
pay for the value of the goods services you have supplied plus the
VAT. You can keep the net value of the invoice that was for the
goods and services supplied but the VAT element is not yours. This
bit you have to pay to HM Customs and Excise.
3. To know when you are due to pay
HM Customs and Excise you have to know when they think a payment
to you is made. There are four basic ways of being paid that you
need to think about:
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Cash (coins
or notes): you receive payment on the date you receive the
money. |
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Cheques: you receive payment
on the date you receive the cheque or the date on the cheque,
whichever is the later. If the cheque is not honoured you
do not need to account for the VAT. If you have already
accounted for the VAT you can adjust your records accordingly. |
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Bank Giro Credit, standing
order or direct: You receive payment on the date your bank
account is credited with payment. |
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Credit or debit card:
You receive payment on the date you make out a sales voucher
for a credit/debit card payment (not when you actually receive
payment from the card provider). |
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| 4. You can reclaim
the VAT that is charged to you by your suppliers (assuming
all your sales are standard or zero rate for VAT) but only
when you have paid the supplier for the goods or services
supplied. Again there are four payment methods that need to
be considered: |
| - |
Cash (coins or notes):
you make payment on the date you pay the money. But remember
– you must have a receipted invoice to claim back
VAT on receipted purchases you have paid in this way. The
receipt proves you have paid. |
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Cheques: you make payment
on the on the date you send the cheque or the date on the
cheque, whichever is the later. If your cheque is not honoured,
you can not reclaim the VAT. If you have already claimed
the VAT you must adjust your records accordingly. |
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Bank Giro Credit, standing
order or direct debit: you make payment on the date your
bank account is debited with such a payment. |
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Credit or debit card:
you pay your supplier on the date a sales voucher is made
out for a credit card payment (not when you actually pay
the credit card company). This one is quite important to
note - a credit card slip is treated the same as if you
paid cash, even though you have not actually paid. |
What does all this mean?
This means:
- that the dates on which you receive
money and
- the date on which you pay out money
Form the basis of your VAT accounting.
This means that:
- the record of money paid into your
bank account, and
- the record of money paid out of
your bank account
- and the record of cash and credit
card expenses you have incurred
are the most important accounts records
when you are working on the VAT cash accounting scheme. They are
in fact all you need except one additional thing. This is a list
of all the sales invoices you have issued. This is needed for the
following reasons:
1. income tax (and for companies,
corporation tax) does not work on a cash basis. It works on what
is called an accruals basis. This means all issued in the year have
been included in your accounts, so this list is essential for that
reason.
2. you want to know who you’ve
issued invoices to so you can chase them for payment.
So what at the end of the day does
this all mean?
Basically it means you have got to
keep the following records:
1. sales book, listing all invoices
issued by you
2. bank receipts book, recording all money paid into the business
bank account
3. bank payments book, recording
all money paid out of the business bank account
4. cash payments book, recording
all money paid out in cash by the business. Cash for this purpose
includes credit card expenses as they are treated in the same way
for the VAT cash accounting scheme.
And if you take cash and do not
bank it you will also need:
5. cash receipts book, recording
all cash received which has not been banked.
In practice we strongly recommend
that if you ever paid in cash that you bank it. This makes life
easier for us, the Inland Revenue and HM Customs and excise and
so it will be cheaper and easier for you in the long run. Because
of this we do not include an example of a cash receipts book in
this book.
In the next sections of this
book we look at how each of these books should be prepared.
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