HM Revenue & Customs Give Greater Bad Debt Protection to Smaller Businesses

Leading Stafford accountancy firm Dean Statham advises that H M Revenue and Customs are raising the VAT cash accounting threshold from £660,000 to £1,350,000 with effect from 1st April 2007.

Peter Hawley, the firm’s VAT specialist, says that this change could help the cash flow of a significant number of smaller businesses as the cash accounting scheme allows them to account for VAT on their sales on the basis of cash received, rather than when invoices are raised.

Mr Hawley says, ‘In normal circumstances, businesses have to account for VAT on their sales based on when they raise their sales invoices. However, under the cash accounting scheme, they account for the VAT on their sales when they receive the cash from their customers. Therefore, the scheme could really help businesses with their cash flow especially if they offer extended credit or suffer a lot of bad debts.

The slight down side is that, under the scheme, businesses can only reclaim the VAT on their purchases and expenses once they have paid their suppliers, rather than when they receive the invoices from them,’ he adds.

Before businesses can start using the scheme, a number of conditions must first be met but Mr Hawley says, ‘These are not particularly arduous so realistically a company could start using the scheme for their first VAT Return period commencing after 1st April 2007.’

For more information, contact Peter Hawley at Dean Statham on 01785 258311 or visit the website www.deanstatham.com.