Virtual Finance Office

Advantages of having an Outsourced Finance Department
Financial Reports, Cash Flow Forecasts and KPIs

Presented to you on a dynamic financial performance dashboard at the touch of a button. 

Saves you money

No need for accounts staff or office premises.

Flexibility

A Virtual Financal Office can be set up for any business at any time. 

Cost-Effective

By outsourcing your finance department, your business gets access to the wealth of experience and varied skill set of our virtual finance department.

Financial support that aligns with your ambitions

Frequently Asked Questions

Which is the best VAT scheme to use?

There are a variety of different VAT schemes available to use and making sense of which is best for your business can be quite complex.

Here's a brief breakdown of those available and when you could consider using them. 

  • Accrual Scheme - VAT is paid when both the customer invoice is raised and supplier invoice is received. This is most advantageous in industries which do not offer credit and therefore incur the VAT at point of sale. It is also of benefit if your supplier terms are longer than your customer terms. (or least your customers pay you quicker than you pay your suppliers)

Typical business include: Almost all business to customer trade, restaurants + cafes; gyms; retail.

  • Cash accounting scheme -
An alternate calculation to the accrual scheme is to only recognise VAT when the money is received (and paid). While the benefits are quite obvious, you only pay the VAT on your sales when you receive the money from your customers, the downside to this is you can only reclaim the VAT when you have paid your suppliers. A useful scheme to have if you have customers with long credit terms. Although a wider look as to why these customers have such terms, and what you can do about it, is equally as beneficial as just changing your VAT scheme… Also handy if your suppliers insist on payments up front. Many businesses prefer this as it can help with cashflow.

Typical business include: New start up’s

  • Monthly VAT returns 
Although it can be an administrative burden this scheme can certainly have its benefits. If you are usually in receipt of A VAT refund then this is the scheme you should be on. This is common for those businesses with Zero or 5% rated supplies. This scheme can also be used in conjunction with others.

Typical business include: Builders* (new builds / disabled services or other qualify services only); freight transport; Printing*; Children's clothing; Take-aways*

*These areas can be complex and further advice is recommended

  • Flat rate scheme

In contrast to monthly VAT returns this was put in place by HMRC to ease the administrative burden. A fixed rate % is applied to gross sales to account for both output and input VAT. The benefits were reduced by the introduction of the limited trader rules (which comes with a fixed % of 16.5) but this is still beneficial if you incur goods (not services) over 2% of turnover and these goods do not attract VAT.

Typical business include: Contractors; Business to business companies which fall under the VAT threshold.

We would always recommend you seek further advice before choosing the correct VAT scheme. If you need help with this, or with other advice, then please get in touch...

How do I change my VAT basis from accruals to cash?

It is important to follow the VAT rules set out by HMRC to ensure that you are not penalised at a later time for not paying over VAT to HMRC on a timely basis. Equally, it is important to understand these rules to ensure that you do not pay VAT to HMRC earlier than you need to.

If you are using the accruals basis then you account for VAT on the date that you invoice customers and on the date on your invoices from suppliers. Under this basis, you may find that you are paying over the VAT on customer invoices before the customer actually pays you.

If you are using the cash basis then you account for VAT on the date that your customers pay their invoices and on the date that you pay your supplier invoices.

The switch to cash basis usually results in a one-off cash boost to your business as it will delay the payment of VAT until invoices have been paid.

Not every business is eligible. A business will be eligible for the cash basis if the estimated taxable turnover is expected to be less than £1.35m in the next 12 months.

Once you are using the cash scheme, you can continue to use the scheme until you reach the point that you estimate annual taxable turnover will exceed £1.6 million.

We recommend that you move to the scheme at the start of a VAT quarter.

Do I need to let HMRC know?

There is no need to inform HMRC that you are changing from accruals to cash basis.

Will I need to update my Xero accounting software?

You will need to update your Xero software. To do so click on settings and financial settings and simply select ‘Cash Scheme’ rather than ‘Accruals Scheme’ from the drop-down menu.

Once done you will need to ensure that you do not “double count” any transactions in your subsequent VAT returns. For example, if you move from accruals to cash accounting you may have reported and paid the VAT relating to an invoice in the previous quarter on the accruals basis and then where the payment is received in the next VAT quarter and you have moved to the cash basis your accounting software will report the invoice again. A manual adjustment will therefore be required to prevent this double counting. Similar issues can also arise in moving from cash accounting to accruals, where you will need to account for VAT on all of your debtors at the point of switching.

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