Usually, yes. Under standard VAT accounting you owe VAT on the invoices you issue in a VAT period, whether or not your customers have paid them, so a slow payer can leave you paying HMRC before you've been paid. The VAT Cash Accounting Scheme changes that for businesses with taxable turnover of £1.35 million or less, and bad debt relief lets you reclaim the VAT on an invoice that's still unpaid six months after its due date.
In this article
The short version
- On standard VAT accounting you owe VAT on invoices issued in a period, paid or not.
- The return and payment are due one month and seven days after the period ends.
- The Cash Accounting Scheme, for turnover up to £1.35 million, ties VAT on sales to when you're paid.
- A pro forma isn't a VAT invoice; you issue the VAT invoice once the customer pays.
- Bad debt relief returns VAT on invoices unpaid six months after the due date.
Why you can owe VAT before you're paid
VAT is due by reference to the tax point, also called the time of supply. For services, the basic tax point is when the work is done, and if you issue a VAT invoice within 14 days of that, the invoice date becomes the tax point instead. If you invoice or get paid before the work is done, that earlier date is the tax point. None of these depends on when your customer actually pays.
So on standard accounting, each VAT invoice you issue goes into the return for the period it falls in. You submit that return and pay HMRC one calendar month and seven days after the end of the period. If your customers take longer than that to pay, you're paying the VAT out of your own cash.
Here's how it can play out. You invoice £5,000 plus £1,000 VAT on 20 March, on 60-day terms. Your quarter ends on 31 March, so the £1,000 is due to HMRC by 7 May. The invoice isn't due until 19 May, and if the customer pays late, the gap gets longer. You've funded the VAT for at least 12 days, plus however long the customer runs late.
How cash accounting changes it
Under the VAT Cash Accounting Scheme, you account for VAT on sales when your customers pay you, and reclaim VAT on purchases when you pay your suppliers. An unpaid invoice doesn't go into your return until the money arrives.
You can join if you're VAT registered and expect your VAT taxable turnover to be £1.35 million or less in the next 12 months. You start at the beginning of a VAT period and don't need to tell HMRC. You have to leave once your turnover goes above £1.6 million, and when you leave, you account for VAT on everything still unpaid.
There are limits. You can't use cash accounting alongside the Flat Rate Scheme, which has its own cash-based turnover method, or if you're behind with VAT returns or payments. Some transactions stay on standard accounting even inside the scheme, including invoices raised in advance and invoices with payment terms of six months or more. The trade-off runs the other way on purchases: you can't reclaim VAT on a supplier invoice until you've paid it.
If most of your customers pay late and you buy little that carries VAT, cash accounting tends to help your cash flow. If you pay suppliers slowly or have large VAT-bearing purchases, the timing of your reclaims moves back too. Your accountant can tell you which way it falls for your business.
Pro forma invoices and bad debt relief
Some businesses send a pro forma invoice to ask for payment before issuing a VAT invoice. A pro forma isn't a VAT invoice, and your customer can't use it to reclaim VAT. When the customer pays, you issue a full VAT invoice within 30 days, and the tax point follows the normal rules, so if you're paid before you do the work, the date of payment is the tax point and the VAT goes into that period.
For invoices that never get paid, bad debt relief lets you reclaim VAT you've already paid to HMRC. The debt has to be at least six months overdue, counted from the later of the due date and the date of supply, and written off in your VAT accounts. You have four years and six months to claim. It gets the VAT back, but only after you've funded it for at least six months.
How to keep the gap small
Whichever scheme you're on, the less time between invoice and payment, the less VAT you fund yourself. That tends to mean shorter terms, a quick way to pay on every invoice, and reminders that start as soon as an invoice is due.
Adfin puts a payment link on each invoice so customers can pay by card, pay by bank or bank transfer, or collects it by direct debit on the due date. Adfin's collection agents chase anything overdue by email, SMS or WhatsApp, within rules you approve, and payments are marked paid in Xero or QuickBooks, which helps when you're working out which invoices are in a cash accounting return.
This article explains HMRC's published guidance and isn't tax advice. Check any change of scheme with your accountant first.
Related guides
- How to recover overdue invoices: the complete UK guide
- Bad debt and write-offs: when to stop chasing
- Cash flow for UK businesses: a complete guide
- How to reconcile VAT when you get net payouts
- VAT invoices: what UK businesses must show
Common questions
Do I pay VAT on an invoice the customer hasn't paid? On standard accounting, yes. VAT is due for the period the invoice's tax point falls in, whether or not the customer has paid.
What is the VAT cash accounting threshold? You can join if you expect your VAT taxable turnover to be £1.35 million or less in the next 12 months, and you must leave if it goes over £1.6 million.
Can I use cash accounting with the Flat Rate Scheme? No. The Flat Rate Scheme has its own cash-based turnover method, so you can't use both.
Is a pro forma invoice a VAT invoice? No. Your customer can't reclaim VAT on it. Once they pay, you issue a full VAT invoice within 30 days.
Can I get back VAT on an invoice that's never paid? Usually, through bad debt relief, once the debt is six months overdue and written off in your VAT accounts. The claim has to be made within four years and six months.
When is VAT due to HMRC? For most businesses, the return and payment are due one calendar month and seven days after the end of each VAT period, which is usually three months long.
Sources
- GOV.UK - VAT Cash Accounting Scheme (accurate as of November 2026) https://www.gov.uk/vat-cash-accounting-scheme
- HMRC - VAT guide (VAT Notice 700) (accurate as of November 2026) https://www.gov.uk/guidance/vat-guide-notice-700
- HMRC - VAT Trader Records Manual: pro-forma invoices (VATREC9020) (accurate as of November 2026) https://www.gov.uk/hmrc-internal-manuals/vat-trader-records/vatrec9020
- HMRC - Relief from VAT on bad debts (VAT Notice 700/18) (accurate as of November 2026) https://www.gov.uk/guidance/relief-from-vat-on-bad-debts-notice-70018
- GOV.UK - Send a VAT Return (accurate as of November 2026) https://www.gov.uk/submit-vat-return
