new cash basis & VAT registration

new cash basis & VAT registration

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Client is an expert witness. He insists his Tax Returns declare his fees going by the date they are invoiced.

All his expenses are paid for at the time they are incurred. No creditors.

No GAAP accounts are prepared. No balance sheet, p&l etc. Tax Return declares income per invoices issued less expenses paid.

He has regular streams of fees from solicitors. His invoices show he is about £10K below the VAT registration threshold each year. He is not VAT registered and wants to stay that way.

However, some fees are paid quickly whist others can take a long time to be paid. He has no control over when he receives payment for invoices and there is no pattern.

He wants to keep things simple, and avoid the need for full GAAP accounts, so is considering opting for the new "official cash basis", as he puts it, from this year.

Question: what happens if he opts for the cash basis but suffers a “bunching” of income received in one 12 month period, thus pushing his receipts above the VAT registration threshold?

Ignoring the "one off” exception, which would excuse him from VAT registration, does this then mean he must admit he has received cash over the threshold and register?

He says he wants to continue using the "invoice issued" basis for judging whether he must register for VAT whilst using the “cash received” basis for his Tax Returns.

He claims to have “read up” on this (and he’s no fool) but I don’t believe his interpretation is correct.

Thoughts anyone?

Replies (3)

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Quack
By Constantly Confused
19th Apr 2013 17:41

I thought (and I'm on a train's wifi so can't verify this ATM) that the VAT threshold was always based on invoiced, even with the recent changes to what can be declared on ITRs. However I am now wondering what I think happens if you are on cash accounting for VAT and want to deregister, is it invoice or cash then?

I still think (gut reaction) the recent cash basis for SE is irrelevant for the VAT registration threshold...

But if I'm wrong correct me!

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By taxinfo
19th Apr 2013 17:54

That is one of my thoughts but this is what is on hmrc.gov....

Quote:
The eligibility conditions for the cash basis will be linked to the VAT registration threshold in place at the end of the tax year.
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By redman7
19th Apr 2013 22:29

date of supply

I believe the VAT registration threshold turnover calculations are based on the value of taxable supplies made - the date of supply being the earlier of when the supply is made or the date of payment.....

...therefore I think as long as his invoiced work stays within the threshold he should be ok

He must be sailing close to the wind on it though....

 

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