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ACCA Applied Skills · Taxation (UK) · The effect of special schemes

Which of the following is an advantage of the VAT cash accounting scheme for a business?

The advantage is that output VAT is paid to HMRC only when customers pay, so there is automatic relief for bad debts. Input VAT is reclaimed only on payment, so it is not earlier, and returns are still required.

  1. AInput VAT can be reclaimed earlier than under standard accounting
  2. BOutput VAT is paid to HMRC only once customers have paid, giving automatic relief for bad debtsCorrect
  3. CThe business can use it for sales of any value on credit terms without limit
  4. DThe business avoids submitting VAT returns

Explanation

Output VAT is accounted for only on receipt of cash, so bad debts never create a VAT cost. Input VAT is delayed until payment, not accelerated. The scheme has a turnover limit and VAT returns are still required.

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