I am GST registered. Is cash accounting ok?

Cash Accounting Scheme for GST

In Singapore, the default accounting method for Goods and Services Tax (GST) is the invoice basis. However, certain small businesses may be eligible to use the cash accounting scheme. Here’s an overview of what this entails:

Eligibility Criteria

To be eligible for the cash accounting scheme, your annual taxable turnover must not exceed S$1 million. This scheme is beneficial for businesses with cash flow concerns, as it allows you to account for GST based on actual payments received and made, rather than the date of invoices issued and received.

How It Works

Under the cash accounting scheme, you:

• Account for Output Tax: When you receive payment for your supplies.

• Claim Input Tax: When you make payment for your purchases.

This method contrasts with the invoice basis, where GST is accounted for based on the issuance or receipt of invoices, regardless of when payment is actually made.

Advantages

1. Improved Cash Flow Management: You only need to pay GST to IRAS when you have received payment from your customers, which can help manage cash flow more effectively.

2. Simplified Record-Keeping: Your accounting records align more closely with your bank statements and cash flow.

Disadvantages

1. Deferred GST Recovery: You can only claim input tax after you have paid your suppliers, which might delay your GST recovery compared to the invoice basis.

2. Tracking Payments: You need to keep detailed records of payments received and made to ensure accurate GST reporting.

Application Process

To use the cash accounting scheme, you must apply to IRAS and receive approval. You need to demonstrate that you meet the eligibility criteria and maintain proper accounting records.

Transitioning Between Schemes

If your business grows and your annual taxable turnover exceeds S$1 million, you must switch back to the invoice basis. Similarly, if you no longer meet the eligibility criteria, you must notify IRAS and cease using the cash accounting scheme.

Conclusion

While cash accounting can be beneficial for managing cash flow, it’s crucial to weigh the advantages and disadvantages carefully. Ensure that your business meets the eligibility criteria and maintains accurate records to comply with GST regulations.