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The Government has confirmed that with effect from 1 April 2007, the threshold under which businesses may elect to use the cash accounting scheme (CAS) for VAT is to be raised to £1.35 million.

Broadly, the CAS is intended to permit small businesses to account for VAT by reference to payments made and received, rather than the time when supplies are made and received. It is currently available to businesses with annual taxable turnover up to £660,000 (from 1 April 2004). Once in the scheme, businesses can continue to use the scheme until their annual taxable turnover exceeds £825,000 (from 1 April 2004). Unlike the annual accounting scheme, it is not necessary for businesses to have been trading for at least 12 months before applying to join the cash accounting scheme. It is possible for businesses to be in both schemes at the same time, provided they satisfy both schemes’ conditions.

From 1 April 2007 the threshold for CAS is to be more than doubled to £1.35 million. This change is intended to help small-to-medium-sized companies cope with cash flow difficulties.

Speaking at the Yorkshire Forward Conference in Bradford, Financial Secretary to the Treasury, John Healey, said:

"Doubling the threshold of the Cash Accounting Scheme will allow more than 50,000 businesses to significantly improve their cashflow. We know that small businesses are the engine for the UK's economy, so it is only right that we look to improve the climate for them."

Links

HMRC: John Healey announces VAT change to bring cashflow boost for business

HMRC Brief 12/07: VAT changes to the cash accounting scheme