It’s looking like I might have to register for VAT very soon, and the more I read up, the more confused I get! I’m worrying in advance.
I’d really appreciate it if somebody could help me on these questions…
Cash or accrual VAT accounting? Reading the Quickfile knowledgebase, it says that most small businesses use the cash method, and the accrual method is often adopted by larger companies. Cash basis seems fine to me but reading the HMRC guidelines it says there are exceptions where you can’t use the cash method… one that I didn’t understand was “where a VAT invoice is raised in advance”. https://www.gov.uk/vat-cash-accounting-scheme/eligibility
I don’t understand this, raised in advance of what?
Obviously I need to issue and keep VAT invoices, I sell mainly to consumers and very few businesses and ALL payments come through paypal, which I have a feed set up for - thus a sales invoice is created for every sale in paypal. When I become VAT registered and set all that up on here, would those invoices then count as as VAT invoices?
I did notice when I read up on VAT invoices that there needs to be a description of the goods and services, but the invoices created automatically from my feed don’t describe the goods sold, it only says the name of the customer in the description. I could edit the description of goods into each invoice, would that be OK?
Talking about the cash VAT accounting scheme again, according to this link https://www.gov.uk/vat-record-keeping/vat-invoices, it does state that to use this scheme you have stamp an invoice with the amount of cash paid and the date. Again this is confusing me, I don’t receive cash payments so does this mean I have to use the accrual method?
I notice that the invoices created by Quickfile all say “Paid in Full” in a green box, is that then viewed as an electronic equivelant of physically stamping a paper invoice?
That’s how I would interpret it. But then, if all your sales are paid for up front and you don’t offer credit terms to your customers, then there’s no real benefit to being on cash accounting rather than accrual-based accounting. In fact, if you take credit from your suppliers but don’t offer credit to your customers, then it may be advantageous to use accrual accounting anyway because then you can reclaim the VAT on purchases at the invoice date rather than having to wait until you have actually paid for them.
I would strongly suggest talking to a professional accountant about this, it’s not an area where I’d want to risk making mistakes.
Thanks Ian, yes all of my sales are paid up front, but most things I buy are also paid up front.
I think you’re right about talking to an accountant, maybe it’s time I hired one. The thing is, they might have their own way of doing things and I like using quickfile to do my bookkeeping.
Get an accountant that uses Quickfile. There is a link somewhere (used to appear on your dashboard) that let you fill in a form to request some callbacks from accountants using Quickfile. I assume this is still there.
Hmm, I think I might have to use cash based VAT accounting, because I use cash based accounting. I don’t think you can run a business on the cash basis and then register for VAT and use the accrual method?
Where did you get that idea? Cash basis for income tax and cash accounting for VAT are different things, I’m pretty sure you can combine them either way.
Hi Ian, I think I stumbled across it on some forum somewhere last night when I was half asleep, tired, and confused.
Although I use cash accounting for tax (it had a lot of advantages it seemed, simplicity etc etc) it does seem as though using cash accounting on VAT might be pointless.
Another thing I learned last night is that retailers (I’m an online retailer) only need to produce VAT invoices for VAT registered business customers, and for consumers that specifically ask for one… 99.9% of my sales are B2C.