"Despite a late renewal of the derogation, the VAT Cash Accounting Scheme will continue to operate as normal. Businesses with a taxable turnover not exceeding GBP660,000 may continue to operate the scheme in the normal way pending the renewed derogation."

It continued:

"The current derogation expires on 31 December 2006 and, despite applying for renewal in 2005, the new derogation will not have been finalised by the end of this year. However, member states have agreed that the new derogation will be retroactive to 1 January 2007, meaning there is no break in the legal cover for the scheme. The expectation is that the new derogation will be approved by the Council in late January and the decision will appear in the Official Journal in February."

The VAT Cash Accounting Scheme (CAS) aims to assist businesses by allowing users to account for VAT when they receive payment from their customers, rather than when they issue a VAT invoice. The scheme rules also mean that VAT on purchases can only be recovered when a CAS user pays his supplier, and this rule requires derogation from the Sixth VAT Directive.