Pay VAT when your customer actually pays you, not when you raise the invoice. A genuine cash-flow helper for businesses with slow-paying clients.
Last updated: June 2026
Under standard VAT accounting, you owe output VAT to HMRC based on when you invoice a customer, regardless of whether they've actually paid you yet. If you invoice £10,000 + VAT in March but the customer doesn't pay until June, you still owe HMRC the VAT on your March-period return.
Under the Cash Accounting Scheme, VAT becomes due only when you actually receive payment from your customer — and correspondingly, you can only reclaim input VAT on purchases once you've actually paid your supplier, not when you receive their invoice. Everything shifts from an invoice-date basis to a cash-movement basis.
The Cash Accounting Scheme is most valuable for businesses with a meaningful gap between invoicing and getting paid — B2B service businesses with 30, 60, or 90-day payment terms, businesses with a history of late payers, or anyone who's been caught paying VAT out of pocket on an invoice a client hasn't settled yet. It also gives automatic protection if a customer never pays at all (goes insolvent, disputes the invoice) — you simply never owed the VAT in the first place, rather than having to separately claim bad debt relief.
It's less useful for businesses that get paid instantly (retail, most e-commerce with card payments at point of sale), since there's little or no gap between the sale and the cash landing — invoice-date and cash-date are effectively the same thing.
No — the Flat Rate Scheme has its own separate cash-basis option built in (you apply the flat percentage to money actually received rather than invoiced), so you don't use the standalone Cash Accounting Scheme alongside Flat Rate. They're mutually exclusive alternatives, not stackable.
No formal application is generally needed if you're eligible (estimated taxable turnover under £1.35 million) — you can simply start using it, provided your VAT returns are up to date and you haven't committed certain VAT offences in the past year. You just need to keep records that support your cash-basis figures.
You must leave once your taxable turnover in the previous 12 months exceeds £1.6 million, at which point you revert to standard invoice-based VAT accounting.
No, it only changes the timing of when VAT becomes due and reclaimable, not the rate you charge customers or the amount ultimately owed over the life of a transaction — it's purely a cash-flow timing mechanism.
There are specific transitional rules to avoid VAT being double-counted or missed when switching schemes mid-relationship with a customer — generally you don't re-account for VAT on invoices already dealt with under the old method. Check HMRC's transition guidance or ask an accountant when switching.
No, they're related concepts but separate schemes. The standalone Cash Accounting Scheme works with standard VAT accounting (charging VAT normally, reclaiming input VAT normally, just timed to cash movements). The Flat Rate Scheme's cash-basis option is specific to businesses already using the Flat Rate Scheme's fixed-percentage method.
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