What is cash accounting and is it useful for my business?

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What is cash accounting and is it useful for my business?


Cash accounting is an accounting method in which payment receipts are recorded during the period they are received, and expenses are recorded in the period in which they are actually paid. But is it the right method for your business?

Check out our guide to understand more and if you have any questions get in touch with Marden & Co on 01737 851 761 for a no-obligation chat or drop us an email on info@mardenandco.co.uk

So what are the pros and cons of cash accounting?

All small businesses are free to implement the cash accounting scheme, however as and when your turnover increases you may need to switch – there are some tricky obstacles associated with leaving the scheme involving VAT and accounting issues, but Marden & Co are able to overcome these for you when the time arises.

 Cash accounting scheme

The cash accounting scheme (CAS) carries many benefits if your business qualifies. The primary advantage is the point at which tax is applied. So for example, the trigger date for your VAT accounting on sales is denoted by when you actually receive payment and not when you supply goods and services, or get paid by your customers. So the good news is that you can delay when you have to account VAT on sales to HMRC which means you’re not left out of pocket when still awaiting payment yourself! Plus if a customer is a bad payer you are covered until payment is actually received and therefore avoid trick bad debt relief rules…. great news for cash flow!

The drawbacks: we pride ourselves on rounded, comprehensive advice so beware that with CAS the system works both ways i.e. you also can’t reclaim VAT on business purchases until you have paid for them, whether you have been invoiced or not! If you reclaim VAT refunds on your returns or make a number of zero-rated supplied, then CAS is probably not for you. 

Sounds good – can my business join the CAS club?

There are some qualifying stipulations – if your turnover in the next 12 months won’t exceed £1,350,000 then you are eligible. The good news is HMRC won’t penalise you so long as you can demonstrate that your original estimate of turnover when joining CAS was sound.

Handy Marden & Co tip… keep a record of your original approximation of turnover when applying!

What if my turnover grows? Can I stay on CAS?

If turnover in the past 12 months exceeds £1,600,000 then you must actively withdraw from CAS. Again, the Marden & Co handy tip would be to gauge whether this increase above threshold is permanent or a one-off. If returning below the limit within the proceeding 12 months, HRMC may allow you to remain on the scheme.

The trouble with leaving

If and when you leave the CAS scheme, you are responsible of accounting for VAT on all unpaid sales invoices (unless unpaid for 6 months or more). On the plus side you can claim back VAT for unpaid purchase invoices (unless they too are older than 6 months!)

Marden & Co know of another handy rule which may work in your favour. If turnover was less than £1,600,000 in the previous 12 months but greater than £1,350,000 in the previous 3 months alone then you can opt to defer accounting for it until the full 6 months have elapsed without an obligation to inform HRMC.

But make sure your accountant is as good as us! The trap of double accounting looms, and a common mistake is to pay HMRC VAT on unpaid sales invoices when leaving the scheme but then again when the customer pays!

Marden & Co utilise many years of accounting and VAT knowledge, along with robust systems on behalf of our clients, to ensue you avoid a messy transition. We have the knowledge, skills and understanding to take the jargon out of CAS and ensure it works in your favour. We are always willing to go that extra mile to offer advice on areas where you can restructure things just a little, to make life easier by focusing on the things that count.

Get in touch with Marden & Co today – you can give us a call on 01737 851 761 for a no-obligation chat or drop us an email on info@mardenandco.co.uk