VAT
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CASH ACCOUNT REGULATIONS • Value added tax (cash accounting) regulations 1987 (SI 1987/1427) come into operation on 1 October this year, when an optional scheme will be introduced to allow businesses with a taxable income below £250,000 a year to account for and pay VAT on the basis of cash paid and received, rather than on the basis of invoices.
The regulations also set out the requirements when a small business ceases to use cash accounting. A number of significant changes, designed to be of help to small business, have been made following consultation with trade and professional bodies:
O Turnover limits for joining and remaining in the scheme will be tax exclusive rather than tax inclusive.
O To be authorised to use cash accounting, a business will be required to have a clean record with regard to VAT offences only for the previous three years instead of, as before, for an unspecified period. 0 Where the commissioners amend the conditions of the scheme by publishing a new notice, existing cash accounting businesses will now be given the chance to withdraw from the amended scheme.
0 Hire purchase and similar sale agreements will be taken outside the scheme; for example, credit for input tax on business purchases under such arrangements may be taken according to the normal VAT rules instead of by instalments related to payments.
Copies of the regulations are available from HM Stationery Office, PO Box 276, London SW8 5DT, tel: 01-612 3316, or through booksellers. A notice giving the conditions and containing an application to use cash accounting will soon be available in local VAT offices and will be sent automatically to those small businesses who have already declared an interest in the scheme.