With the Annual Accounting Scheme you complete one VAT return per year instead of each quarter.
The advantages of using the scheme are that…
- Only one VAT return is required per year and have two months in which to complete it.
- Cash flow is helped by regular monthly payments.
- You can choose the VAT return year that you want.
It is usually necessary to make nine equal interim VAT payments by direct debit at monthly intervals during the year. The amount of the interim payments are based on an estimate of your total VAT liability based on your previous 12 months net payment of VAT. A balancing payment is made when the annual return is filed. You can also apply for quarterly payments that are 25% of the provisional VAT liability.
You do have to be careful that not to build up a large unexpected balancing payment, so you need to monitor your total VAT liability over the year. The annual accounting scheme is also not good for any business with regular repayments of VAT as it then takes over a year to get your money.
To qualify to use the scheme…
- If your annual taxable turnover is not expected to exceed £1,350,000 you can join at any time after registering for VAT
- You do not belong to a VAT group, or are a registered as a division of a company.
You can continue to use the scheme until your annual taxable turnover reaches £1,600,000.