The Annual Accounting scheme enables VAT registered businesses to submit their VAT returns annually, rather than quarterly. The main features of the scheme are:

  • Available for traders with an annual taxable turnover of up to £1.35 million at the time the scheme commences.
  • Taxable turnover includes sales at standard, reduced or zero rated VAT, but excludes VAT itself.
  • The scheme can be operated in conjunction with the flat rate scheme, or the cash accounting scheme, but not both.
  • If annual taxable turnover subsequently exceeds £1.35 million, the trader can continue in this scheme until taxable turnover reaches £1.6 million.
  • The trader must pay 90% of an estimate made of the likely annual VAT payment, normally paid electronically by making nine equal interim payments starting in the fourth month of the VAT year.
  • Alternatively the trader can pay by making three interim payments, each of 25% of the previous year’s VAT liability or 25% of the likely annual VAT liability if the business has been VAT registered for less than 12 months. This is payable in months 4,7 and 10 of the annual accounting period.
  • The trader must pay any balance due with the annual electronic VAT Return, due two months after the end of the VAT year.

The timing of payments

Mth

1

2

3

4

5

6

7

8

9

10

11

12

13

14

9 Interim Payments

 

 

 

1

2

3

4

5

6

7

8

9

 

10

3 Interim Payments

 

 

 

1

 

 

2

 

 

3

 

 

 

4

What are the advantages and disadvantages of the scheme?

Advantages

  • The scheme helps smooth out its cash flow by paying a set amount each month, or quarter.
  • A business only needs to submit one VAT Return each year, instead of four.
  • A business is allowed two months instead of one to complete and submit the on-line annual VAT Return and send the balancing payment.

Disadvantages

  • If you regularly reclaim VAT (if you supply zero rates goods such as books) you only receive one repayment each year.

If you need advice about whether the Annual Accounting VAT scheme would benefit your business, please use the CONTACT US facility and we will be very pleased to help.

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