What is invoice accounting for VAT?
Definition of invoice accounting for VAT
Invoice accounting is the standard way to add up your VAT for your VAT return. It means that you will pay VAT to HMRC when you've invoiced your customers, regardless of when your customers pay you.
When you are invoice accounting for VAT, you may have to pay HMRC the VAT on your invoices before your customers have paid you. Conversely, you may be able to reclaim the VAT on your bills before you pay your suppliers.
Cash accounting is generally kinder to small businesses than invoice accounting, unless your customers always pay you on the nail and you don't pay your suppliers straight away.
Example of invoice accounting for VAT
A business prepares VAT returns to the quarters ending 31st March, 30th June, 30th September and 31st December. It is invoice accounting for VAT.
the business issues an invoice dated 1st March 2014, which the customer pays for on 1st April 2014.
This invoice will go on the VAT return to 31st March 2014, because that is the quarter in which the invoice was dated.
Software for invoice accounting
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FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.