What’s the VAT Cash Accounting Scheme and should I be on it?

What’s the VAT Cash Accounting Scheme and should I be on it?

A consultancy client asks:

What’s the VAT Cash Accounting Scheme and should I be on it?

Acumenica answers:

Taxation can be a complex matter for small businesses, often consuming valuable time and resources that could be better spent on growing their operations. In an effort to alleviate this burden, many countries, including the United Kingdom, have introduced the VAT Cash Accounting Scheme. This scheme offers a simplified approach to Value Added Tax (VAT) that can benefit small businesses in various ways. In this blog post, we'll explore the VAT Cash Accounting Scheme and its advantages for eligible businesses.

What is the VAT Cash Accounting Scheme?

The VAT Cash Accounting Scheme is an optional VAT accounting method that allows eligible businesses to account for and pay VAT only on the cash they receive from their customers and the cash they pay to their suppliers. In contrast to the traditional VAT accounting method, which requires businesses to account for VAT on invoices issued and received, the cash accounting scheme provides a more straightforward way of handling VAT.

Advantages of the VAT Cash Accounting Scheme

Improved Cash Flow Management: One of the most significant benefits of the VAT Cash Accounting Scheme is improved cash flow management. Under this scheme, businesses only pay VAT when they receive payment from their customers. This means that they don't have to find funds to cover the VAT on unpaid invoices, which can be a significant relief, especially for small businesses with tight budgets.

Reduced Administrative Burden: The scheme simplifies VAT accounting and reporting. Businesses are not required to keep track of VAT on unpaid invoices or outstanding bills, reducing the administrative burden. This can save time and resources, allowing business owners to focus on core operations.

Enhanced Financial Predictability: With the VAT Cash Accounting Scheme, businesses can more accurately predict their VAT liabilities. Since VAT is only due when cash is received, there are fewer surprises, and it's easier to budget for tax payments.

Suitable for Seasonal Businesses: Seasonal businesses often struggle with traditional VAT accounting, as they may have periods of low cash flow. The VAT Cash Accounting Scheme is particularly beneficial for such businesses, as it allows them to align their VAT payments with their cash receipts during peak seasons.

Eligibility for Smaller Businesses:

In the UK, businesses with a taxable turnover of up to £1.35 million (as of my last knowledge update in September 2021) are eligible for the VAT Cash Accounting Scheme. This makes it accessible to a broad range of small and medium-sized enterprises (SMEs).


The VAT Cash Accounting Scheme offers a simplified and more cash-friendly approach to VAT for eligible businesses. It can lead to better cash flow management, reduced administrative burden, and enhanced financial predictability. While it may not be suitable for all businesses, it can be a valuable tool for many SMEs looking to streamline their tax obligations. 

The Acumenica team are on hand to help business owners with all tax planning as well as on other matters. To arrange a no-obligation confidential chat, please complete the form on our Contact Us page or call 03330 166559.