This recent post on the SME Blog talks about the recent changes the UK has made to VAT, in that they are now offering small businesses the ability to account for and remit VAT on a cash basis, rather than accrual:
The VAT cash accounting scheme allows you to account for VAT (output tax) on your sales on the basis of payments you receive, rather than on tax invoices you issue. However, if you choose to use the scheme, you can only reclaim the VAT incurred on your purchases (input tax) once you pay your supplier.
This is good news for businesses with large trade debtors and good news generally for cashflow.
The equivalent value-added tax in Canada, the GST, requires businesses use only the accrual method, which means even if you haven’t collected the tax on sales, you have to remit. That being said, you still get to claim the GST you haven’t yet paid on purchases against those credit sales, minimizing the timing difference impact.
Both methods simplify the accounting but do not address the cash flow problems in the same way the UK has done with their cash scheme.
So what is better? Helping small businesses save time and money accounting for their tax remittances, or helping small businesses match the timing of their cash inflows and outflows from sales and purchases to tax remittances? I’m inclined to think the latter is more helpful.