Tx notes fa22 Final

Illustration 5
Violet Ltd gives its customers a 30-day credit period, but pays for most of its expenses in cash. 
Violet wants to know what conditions must be satisfied before it will be permitted to use the cash 
accounting scheme, and the implications of using the scheme. 
(1)
Violet Ltd will be able to operate the cash accounting scheme provided its expected taxable 
turnover for the next 12 months does not exceed £1,350,000. 
(2)
In addition, the company must be up to date with its VAT returns and VAT payments. 
(3)
The scheme will result in the company’s tax point becoming the date that payment is received 
from customers. 
(4)
This will delay the payment of output tax, and also provides for automatic bad debt relief 
should a customer not pay. 
(5)
Since Violet Ltd pays in cash for its expenses, the company’s recovery of input VAT will not be 
affected
(6)
Stay in scheme until annual taxable turnover reaches £1,600,000
(c)
The advantage of the annual accounting scheme is mainly administrative, since a trader only 
has to make one VAT return each year. Payments on account of the annual VAT liability are 
normally required. It will also allow easier budgeting for cashflow.
Illustration 6 
Crocus Ltd wants to know the advantages of the annual accounting scheme, and when it will be 
permitted to join. The company’s annual turnover is £450,000.
(1)
Crocus Ltd can apply to use the annual accounting scheme provided its expected taxable 
turnover for the next 12 months does not exceed £1,350,000. 
(2)
In addition the company must be up-to-date with its VAT returns and payments. 
(3)
Under the scheme only one VAT return is submitted each year. This is due within two months of 
the end of the year. 
(4)
Nine monthly payments are made on account, each being 10% of the previous year’s VAT, in 
months 4 to 12 of the period with any balancing payment being made with the VAT return, or 
they may choose to pay quarterly instead
(5)
Stay in scheme until annual taxable turnover reaches £1,600,000

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