More small firms moving to cash accounting

An increasing amount of small businesses are switching from ledger accounting to cash accounting to help boost their cash flow.

Small firms that have an annual turnover of less than £1.35m can move from ledger to cash accounting. This switch means businesses only pay VAT on receiving payment from a customer, instead of every quarter regardless of whether payment has been recieved.

"Cash accounting for VAT payments is an established mechanism that delivers immediate liquidity benefits. For some business owners this could be the difference between survival or not," said Phil Orford of the Forum of Private Businesses.

The forum is lobbying the government to increase the turnover limit to £2m so more firms can switch to cash accounting.

New start-ups can register for cash accounting if they have a turnover of less than £7m a year.