Cash flow impact: Cash accounting improves cash flow by delaying VAT payments until you receive money from customers, which can benefit businesses with slow-paying clients.

Business size eligibility: Cash accounting is available to businesses with taxable turnover under £1.35 million, while invoice accounting has no turnover limit and is mandatory for larger firms.

Invoice timing: With invoice accounting, VAT is due as soon as you issue an invoice, even if the customer hasn't paid, which can create earlier tax liabilities.

Bad debt relief: Cash accounting simplifies bad debt relief because you only pay VAT on money actually received, reducing risk if customers don't pay.

Purchase VAT reclaim: Under cash accounting, you can only reclaim VAT on purchases once you've paid suppliers, whereas invoice accounting allows reclaim upon receiving invoices.

Administrative simplicity: Cash accounting can be simpler for record-keeping if you have irregular cash flows, as it ties VAT to actual payments.

Making Tax Digital (MTD) compliance: Both schemes are compatible with MTD for VAT requirements, but you must ensure your accounting software supports your chosen method.

Switching between schemes: You can switch schemes, but HMRC has rules, such as needing to stay on a new scheme for at least one year and notifying them in advance.

Impact on financial reporting: Invoice accounting may provide a more accurate picture of VAT liabilities at any given time, which can aid in financial planning and forecasting.

Industry considerations: Some sectors, like construction with CIS, might find cash accounting advantageous due to payment delays, but professional advice can help tailor the choice.