Invoice Accounting

VAT is accounted for on the basis of invoices issued and invoices received. If you invoice a customer and don’t get paid for a while, you still have to pay the VAT element to HM Customs and Excise anyway. If the invoice is not settled at all, then you can claim bad debt relief after six months. This may still be awkward, so you may wish to look at cash accounting instead. A discussion with your accountant is recommended.

Suitable bookkeeping systems are supplied by Simplex and by Collins. These systems have both a cash book and a separate VAT book, and you may find them in many stationers. The cash book supplied by Simplex is called the Simplex D.

If your VAT affairs are in a mess, then you may be directed to use invoice accounting by a VAT officer, so it is the default method of bookkeeping for VAT. It is permissible to use invoice accounting for receipts, and cash accounting for payments, but this may not be sensible. It is always prohibited to use cash accounting for receipts and invoice accounting for payments.