Should you be paying VAT to HMRC when your customers have not paid you?

There are provisions which allow you to reclaim the VAT you have paid to HMRC if your customer has not paid you within six months of the due date of the invoice. It is always sensible to keep your list of debtors under review to identify these items and reduce the amount you pay to HMRC in a later VAT period accordingly. Of course you have to pay over the VAT again later on when the customer pays you

There are a couple of warnings to be aware of as : you must document the write off for VAT purposes and must not have factored the debt.

The other side of these rules are that you need to remember that if you have not paid a supplier six months after the due date of an invoice, you must adjust your next VAT Return for the VAT you have not paid to the supplier. Again you reclaim when you actually pay. It is easy to overlook this and very easy for a VAT Officer to find this type of error on an inspection

If you are a small business (with a turnover of less than £1,350,000) you can join the cash accounting scheme where you deal your VAT according to when your customers pay you or when you pay your suppliers. If you invoice your customers and have to wait for them to pay you, this can be much better for your business cashflow. You do need to be careful that you deal with any changes in the VAT rate (as in January) properly, but otherwise the scheme is easy to operate.