Q&A – Can sales to account customers be excluded?

Q. Within my building supplies store, we account for VAT by using a point of sale retail scheme based on our daily gross takings figures. We have quite a lot of account customers who buy goods from the shop but don’t pay until 30 or 60 days later. We include the sale in the till when it is made but can we delay paying VAT until the customer settles their account? This would improve our cash flow, but also means we are not paying VAT in the event of a potential bad debt.

A. The answer is that it depends. The starting point is that output tax is accounted for and payable by a retailer when the goods are supplied, rather than when the payment is received. However, if your annual sales are less than £1 million, then you can do a debtors’ adjustment each time a VAT return is completed, i.e. reducing the takings figure by the value of your closing debtors and increasing it for opening debtors. This adjustment means that VAT is being accounted for on payments received from account customers rather than sales made.