Invoicing: can you improve your VAT cash flow?

Cash accounting scheme?

You may be considering using the cash accounting scheme (CAS) to help your VAT cash flow challenges. This means that you would not account for output tax on a VAT return until your customers pay but you cannot claim input tax until you pay your suppliers. In effect, this is a “win lose” outcome, and is unlikely to help if your customers are taking a long time to pay.

Additionally, you may not be eligible for the CAS in any case because your annual taxable sales exceed £1.35 million excluding VAT. In such cases, you will account for output tax and claim input tax according to the dates of your sales and purchase invoices. However, there are other ways you could improve your VAT cash flow.

Continuous services

If you provide ongoing services to your customers, with invoices raised on a periodic basis, it is worth delaying the issuing of your sales invoices until they have paid. How will this work?

• for continuous supplies of services, a tax point is created according to either the invoice or payment date, whichever happens first
• you would issue an alternative document to tell your customers how much they owe for your services, e.g. a pro forma invoice; application for payment; request for payment
• you will then issue a sales invoice and account for output tax when you are paid.

You should ensure there is a complete audit trail for the document you issue, perhaps giving each pro forma invoice a unique and sequential identifying number. The above process only works for continuous supplies of services. If you provide a service to a customer that has a clear finish date, you must issue an invoice and account for VAT within 14 days of completing the job, otherwise the completion date will be the tax point instead.

Stage payments

Does your business receive interim payments for some of your longer contracts? If so, it also makes sense in these situations to issue an “application for payment” document to your customer, or any document other than a sales invoice, and only issue a sales invoice when you have been paid. This will also delay your output tax accounting date.

Many traders in the construction industry issue self-billed invoices to their suppliers. If this is the case, you should not issue sales invoices for these jobs.

Delay invoice date?

If your VAT period ends on, say, 30 September, you could delay issuing some of your sales invoices (for non-continuous supplies) until 1 October or later. However, the invoice date must still be less than 14 days after the date you completed the services in question.

Don’t score an own goal here with the delayed invoice date. Some customers will treat a sales invoice dated 1 October the same as one dated on 31 October and delay their payment by an extra month compared to a 30 September invoice.