Cashflow causing you a problem? Don’t go to the bank, go to the VATman!

Here are some timely tips for traders to ease cashflow difficulties

Delay and speed up!
Every 3 months, the VAT return falls due for payment, and when money is tight, this can cause great difficulty. Do you go to your bank and ask for an extension to your overdraft, (optimistic in these difficult times), or are there any other things you can do to improve your cashflow?

Sounds simple: The are 2 basic things you can do to improve your cashflow when accounting for VAT;


1.delay the payment of output VAT, and

2.speed up the reclaiming of input VAT.

Sounds simple, but how exactly can you do this?
Delay paying output VAT:

There are a number of things you can quite legally do to delay the payment of output VAT:


The first, and most important, is that businesses with a turnover under £1,350,000 per annum can go onto the Cash Accounting Scheme. You do not have to apply to use the scheme - if you are eligible you can just start using it. Using this scheme, you only need to account for output VAT after you have been paid. On the down side, you can only reclaim the VAT on purchases when you have paid for them. You can stay on cash accounting until your turnover goes over £1,600,000.

If you make continuous supplies of services (accountants, lawyers etc.) instead of issuing a tax invoice you can issue a request for payment. This does not create a tax point and you will only need to account for VAT when you are paid. Don’t forget to issue a proper tax invoice when you are paid. This gives you the cash flow advantage of Cash Accounting even if your turnover is above the limits.

You only have to account for VAT when a sales invoice is issued, not when it is produced. So, if you produce tax invoices on the last day of your VAT period and don’t post them until the next day, you can overstamp them with the correct issue date, and delay payment of the VAT by three months.

Under the tax point rules, you have to issue your invoice within 14 days of the basic tax point (date of supply). This creates an actual tax point on the date the invoice is issued, so if the 14 day period spans the end of a VAT quarter, you can defer paying the output tax by three months.

If you import goods, you could consider setting up a duty deferment account with HMRC. This could delay paying import VAT by up to 45 days.


Speed up input VAT repayment: How can I get back that VAT more quickly?


Input tax accruals - the right to claim back input VAT arises when the VAT was charged, the tax point. The vast majority of businesses post purchase invoices onto their accounting systems only once they have been approved for payment. Therefore, at the end a VAT period, there can be a number of invoices dated within the period which are not yet entered into the accounting system and the VAT not yet claimed. You can make a manual accrual of this input VAT without asking HMRC’s permission, but don’t forget to adjust it on your computer system at the end of the next period, or you’ll claim it twice!

Monitor aged debtors so that you can make a bad debt relief claim once a debt is six months past its due date for payment.

If you have a company that receives property rental income, you will normally bill it at the end of each calendar quarter. If this is the case, make sure your VAT returns end February, May, August and November as this will gain two months' use of the VAT before paying it to HMRC.

If you have a number of associated companies which make supplies to each other, or you have a parent company making management charges to its subsidiary, you could take a look at your VAT return staggers to make sure that you can claim back the input VAT in one company before you have to account for the output VAT in the other. If not, change your VAT return stagger.

Make sure you have claimed back all the VAT you possibly can - check that VAT has been claimed on petty cash, staff expenses, mileage allowances etc. If you have not, you can go back over the last three years and claim it all back.

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Thanks to Andrew Needham of VAT Solutions (UK) Ltd for this article