£300,000 Exit threshold - cash accounting

Accounting
1

Does anyone know if the 300k exit threshold for cash accounting includes or excludes VAT?

Reading the gov.uk website it says that the 300k is for total business turnover, so that has always implied to me that would include the VAT charged?

2

That threshold is for the cash basis accounting method, not cash accounting which refers to vat thresholds

And as far as I am aware, the cash basis threshold would most likely be net of vat. But I’d ask your accountant or hmrc for confirmation.

Also just incase you are unaware.

VAT registered businesses

You can start to use cash basis if you’re VAT registered as long as your income is £150,000 or less during the tax year.

You can record your business income and expenses either excluding or including VAT. However, you must treat income and expenses the same way.

If you choose to include VAT, you have to record:

  • VAT payments you make to HM Revenue and Customs (HMRC) as expenses
  • VAT repayments you receive from HMRC as income
3

Hi, yes Paul, thanks for that. I meant the cash basis accounting method - I record my income and expenses for my SA tax return net of VAT.

So this year, sales turnover will be less than 300k net as per SA return, but total of more than 300k with VAT which I assumed takes me over the cash basis accounting exit threshold.

4

If I’m honest I’m not 100% certain but id be inclined to treat the threshold as net of vat, as vat is usually a charge added to turnover.

5

Thanks, what you say makes sense, I’ll double check with HMRC as you recommended.

Unless anyone else knows the answer for sure?

6

The threshold is based on turnover, which will mean net of VAT.

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7

Hi thanks, I did ask HMRC on their community forum, but all they did was refer me to the gov.uk pages on cash basis, which I’d already read.

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8

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