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VAT Cashflow

How can I maximise my VAT cashflow?

By asking your suppliers to invoice you just one day earlier, with no effect on your normal payment terms, can improve your VAT cashflow by three months.

A £10,000 invoice due to be invoiced on 1st April 2011, could be invoiced on 31st March 2011 enabling you to offset the £2,000 VAT in the quarter to 31st March 2011 rather than the quarter to 30th June 2011. Similarly, delaying issuing your own supply invoices by one day has the same effect. Together, this would provide you with interest free working capital of £4,000 for three months without involving your bank.

If your turnover is under £1.35 million, annual VAT accounting can be helpful. VAT is paid for the first three quarters on account on the normal due date. The balancing amount for the last quarter is paid one month later than usual. With a quarterly VAT payment of £10,000 you have the use of £10,000 for an additional month. Moreover, the VAT due on account is a quarter of your previous year’s VAT. If you are enjoying an increasing turnover, this is a useful cashflow advantage.

If you suffer from a slow paying customer you can reclaim the VAT when the debt is six months old, even though you might get paid after this. When you do get paid you simply include this in your next VAT return. If your customers are regularly slow payers and your turnover is under £1.35 million, cash VAT accounting may improve your cashflow.

And always check you are maximising your VAT recovery on less visible items like employee expenses.

Understanding your business’s commercial arrangements and recent/prospective trading patterns are essential to maximising your VAT cashflow.


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