FAQ

Types of Accounting for VAT

There are two types of book-keeping/accounting:

Cash Accounting

In simple terms; cash accounting is an acceptable method of recording for both the HM Customs and Excise and Inland Revenue although there are some manual figures you will have to produce to enable final management accounts to be prepared. In essence, when you are cash accounting a Sale only becomes a Sale when it is paid and a Purchase only becomes a purchase when it is paid. If you are in a cash business such as hairdressing; shop-keeping; pub; restaurant etc. this method is ideal as you are generally dealing in Cash on a daily basis.

In VAT terms, VAT is paid (if you are VAT registered) in the relevant VAT quarter when you collect money for a sale and recovered in the relevant VAT quarter when you have paid for goods and in ACCOUNTING terms your accounts are based upon money in versus money out.

This is a threshold for Cash Accounting however and large firms would normally be Standard Accounting.

Standard Accounting

Standard accounting is different in that a Sale is a sale at point of invoice and a Purchase is a purchase at point of invoice i.e. it is recorded whether an item is paid to you or paid by you in the month it was Sold/Purchased within the relevant VAT quarter.

This type of accounting allow Debtors (people who owe you money) and Creditors (people you owe money) to be recorded. When a company reaches a turnover of £840K (this threshold can change) IT MUST be standard accounting.

Whichever method you adopt in the beginning is normally the method you continue to use unless you have good reason to change (such as reaching the standard accounting threshold).

It is important to discuss which method of accounting most suits your business with your business advisor or accountant in the beginning as the consequences of adopting the wrong accounting method can have serious implications on your business in terms of cash flow and other areas of your business.

Is the Tax Threshold for PAYE the same as the NI Threshold?

No, the NI Threshold is currently lower than the Tax Threshold.

The current personal allowance for 2009-2010 is £6475 OR 647L.

Personal allowances can change when an individual recieves benefits such as a car or fuel or medical insurance from their employer. Personal allowance can also be used by HMRC to clawback underpaid tax from previous years.