can I pay VAT based on invoice due date, rather than invoice raised date?

[tolland123]

Hi all,
This is my first post so go easy, I have a VAT return due and I forgot to speak to my accountant during the week ;-( oops

I have raised some fairly large invoices based on 45 days, which the customer has yet to pay. (they are a payer, just a consistently late payer...)

The invoice date falls into my July-Sep vat quarter and the due date falls into Oct-Dec. As the amount was quite large I might end with a situation where I would have to borrow money to pay the VAT due if it was registered to July-Sep, however by the time the Oct-Dec is due I will have the money in hand.

I see this thread here;
http://forums.contractoruk.com/accou...-received.html

but it seems more intuitive that the liability should arise when the payment is due, otherwise you are going to lose interest on the VAT liability amount when the invoice due data spans VAT quarters. And what happens when the client queries and you make a modification to the invoice amount, you would have to submit a correction to the VAT return that was registered when the original invoice was raised.

Anyway, I am sure there are loads of threads on this matter which I can look at in more depth, but I would be grateful a yes/no on using the due date for VAT if the liability was going to wipe me out cash-wise...

Many Thanks,
Tee

[Robot]

Pay VAT on the cash accounting method, you only pay VAT over to HMRC when your invoices are actually paid.

Robot

[malvolio]

Pay VAT on the cash accounting method, you only pay VAT over to HMRC when your invoices are actually paid.

Robot

Agreed. Talk to your accountant.

However, you have a rather larger concern. VAT is paid retrospectively in the month following the end of the quarter. VAT is also not your money, you merely collect it for HMG. So not having the VAT in your bank account ready to be paid is not only utterly stupid, it's marginally illegal.

Get your cash flow sorted, and keep the VAT bit separate. You're in business, behave like one.

[javadude]

I think the point is he hasn't collected the VAT yet as the invoice hasn't been paid. Or am I misunderstanding?

[krytonsheep]

I would way up the pros and cons of cash accounting before switching to it.

In your situation the accountant should contact HMRC and hopefully make an arrangement with them to delay payment.

From... HM Revenue & Customs: Penalties for mistakes and delays with your VAT

What to do if you are having trouble paying VAT

If you have or think you may have difficulty paying your VAT, you should still send in your VAT Return on time and contact HMRC’s Business Payment Support Service before your VAT becomes due.

And from... HM Revenue & Customs:Business Payment Support Service

If you're worried about being able to meet tax, National Insurance, VAT or other payments owed to HM Revenue & Customs (HMRC), or you anticipate that you can’t afford to make payments becoming due, you can call our Business Payment Support Line below seven days a week.

Our staff will review your circumstances and discuss temporary options tailored to your business needs, such as arranging for you to make payments over a longer period. We will not charge additional late payment surcharges on payments included in the arrangement, although interest will continue to be payable on those taxes where it applies.

[TykeMerc]

The way I understand it is the default approach is "Invoice Date" so if your VAT quarter ends in Sept you pay the VAT on invoices raised upto the end of Sept irrespective of whether they've been paid (unless it's a bad debt you've informed HMRC about).

You can request to go on the Cash Accounting scheme which works on the payment date not the invoice issue date, literally speaking that should be done in advance.

The third way is rather naughty where you slip the invoice to the next quarter and hope HMRC won't inspect you so will never notice. If they do notice it could be a bit nasty.

I'd be inclined to have a word with HMRC myself, explain the situation which is pretty straight forward and ask to go onto Cash Accounting (or whatever it's called these days).

[malvolio]

I think the point is he hasn't collected the VAT yet as the invoice hasn't been paid. Or am I misunderstanding?

Yes I understand that, and agreed he is in a tricky position, albeit a fairly easily recoverable one. But no matter how much and how late, he knew an amount of VAT would be due and really should have covered it off. As I have said many times, we are in business and have to be a bit smarter with money than we sometimes realise. And that includes thiking ahead...

VAT falls liable at either the point at which the service or item is delivered to the customer, or on the Invoice date in the case of a continuiing supply of services. It's payable at a fixed point as well, either at the relevant quarter end or when the money ocmes in to the account using cash accounting. So all of it is predictable enough that you shouldn't get into problems with it.

[Wanderer]

I have raised some fairly large invoices based on 45 days, which the customer has yet to pay. (they are a payer, just a consistently late payer...)

I am sure there are loads of threads on this matter which I can look at in more depth, but I would be grateful a yes/no on using the due date for VAT if the liability was going to wipe me out cash-wise...

Lots of businesses have the same problem. Check out the Cash Accounting Scheme. Simples.

Take note that HMRC might not let you join it unless your VAT is up to date so get some advice from your accountant. Don't go defaulting on your VAT payments, the VAT people get very grumpy very quickly if you don't tell them what's going on. If you talk to them (through your accountant) then they are actually quite reasonable to deal with and will come to some arrangement rather than bankrupting your otherwise viable company because it doesn't have good cash flow.

[BolshieBastard]

If and when you register for VAT, if you are not using the FRS then you should always opt for the cash accounting scheme.

If you opt for the CAS, you only pay HMRC for the VAT you have received not what you have billed.

I think the exception is if you co's T\O is over a set threshold.

[TykeMerc]

Prior to the merger with the Inland Revenue HM Customs had a well deserved reputation for being pretty harsh in the event of defaults, late submissions etc, however their less well known reputation was for being quite sensible if approached with a situation before it became a default.

While HMRC are known to be utter muppets these days that's almost entirely the IR side, the Customs people are still fairly sensible.

Talk to them either direct or via your accountant and get on the Cash Accounting basis for the future.