Cash accounting: You account for VAT only when payments are made or received, which can defer VAT liabilities and improve cash flow.

Invoice accounting: VAT is accounted for on the invoice date, providing a straightforward match with sales and purchase records.

Eligibility: Most businesses with a taxable turnover below £1.35 million can use cash accounting, while invoice accounting is available to all.

Cash flow benefit: Cash accounting helps businesses with slow-paying customers by delaying VAT payments until income is received.

Simplicity: Invoice accounting is easier for businesses with regular, timely invoicing and payments.

Bad debts: In cash accounting, you don't pay VAT on invoices that remain unpaid, reducing risk.

Compliance: Both methods require accurate record-keeping, such as sales invoices and purchase receipts, for HMRC audits.

Switching methods: You can change from cash to invoice accounting or vice versa, but HMRC approval is needed, and it may affect your VAT returns.

Impact on VAT returns: Cash accounting delays VAT reporting compared to invoice accounting, influencing quarterly submission deadlines.

Best for: Cash accounting suits businesses with irregular income or credit sales; invoice accounting is ideal for stable cash flow and consistent billing.