What is the VAT Cash Accounting Scheme in the UK?

Full answer

Under standard VAT accounting, VAT becomes due (output tax) when an invoice is issued, and is recoverable (input tax) when goods or services are received. This means a business can owe VAT to HMRC before the customer has paid. The Cash Accounting Scheme (CAS) switches both output and input VAT to a cash basis. How it works: output VAT is only paid to HMRC in the period when cash is received from customers. Input VAT is only reclaimed in the period when cash is paid to suppliers. This is particularly beneficial for businesses with slow-paying customers -- a 60-day invoice becomes a 60-day deferral of the VAT liability. Eligibility: taxable turnover (excluding VAT) of £1.35m or less to join; must leave if it exceeds £1.6m. Exclusions: businesses cannot use CAS if they are behind with VAT returns or payments, or have been convicted of VAT offences in the last 12 months. Interaction with bad debts: under standard accounting, if a customer does not pay, you must separately claim bad debt relief (after 6 months). Under CAS, no bad debt relief is needed because you never paid the output VAT in the first place. Interaction with hire purchase, credit sale, or conditional sale: these transactions cannot use cash accounting -- VAT is due on the full consideration when the goods are made available. Leaving the scheme: when you leave CAS (voluntarily or because you exceed the threshold), you must account for all VAT on outstanding debtors and creditors in your first period under standard accounting. HMRC guidance: VAT Notice 731.

More answers

• What is the VAT Flat Rate Scheme and who can use it in 2026/27?