The Annual Accounting Scheme is one of HMRC’s VAT schemes designed to help small businesses by providing an increased degree of certainty of cash flows, as well as a reduce compliance burden. Unlike the usual VAT-registered businesses that submit their VAT Returns to HMRC 4 to 12 times a year, businesses under the Annual Accounting Scheme can do the following:
Your business can join the Annual Accounting Scheme if:
However, your business is not allowed to join the Annual Accounting Scheme if:
Feel free to speak to our accountants to see if the Annual Accounting Scheme is good for your business.
You can join the Annual Accounting VAT scheme:
BT VAT
HM Revenue and Customs
BX9 1WR
HMRC will send a confirmation to your VAT online account (or in the post if you do not apply online) to show you have joined the Scheme.
If you are under the Annual Accounting Scheme: you must make advance payments towards your VAT bill (either monthly or quarterly) during your accounting period - and a Final Payment when you submit your VAT Return.
Your payments will be due by these dates:
Payment | Deadline |
| Monthly | Due at the end of months 4, 5, 6, 7, 8, 9, 10, 11 and 12 |
| Quarterly | Due at the end of months 4, 7 and 10 |
| Final Payment | Within two months of month 12 |
How much you pay will depend on your previous VAT returns (if you have been VAT-registered for more than 12 months) or estimated (if you’re new to VAT).
Each advance payment is either:
OR
Normally, HMRC will inform you when the instalments are due, and how much you must pay - in writing.
The final payment (‘balancing payment’) is the difference between your advance payments and the actual VAT bill confirmed on your VAT Return. It is due together with the VAT return two months after the end of the annual accounting period.
It is important to remember that you may be due a VAT refund - if you have overpaid HMRC.
This table shows the pros and cons of using the VAT Annual Accounting Scheme:
Advantages | Disadvantages |
| You only submit one VAT return every year – a reduction from the usual four. | Interim payments may be higher than needed because they are based on the previous year’s return. However, they can be adjusted if there is a significant difference.
|
| At the end of the tax year - your business will still have two months to submit the Final VAT Return. | You must remember to notify HMRC if the VAT liability is likely to be significantly higher or lower than in the previous year.
|
| It should help simplify calculations where the business uses a retail scheme or is partially exempt. | Not suitable for businesses that regularly reclaim VAT because you'll only be able to get one refund a year (when you submit the VAT Return).
|
| You can easily manage your cash flow because you know the liability to be paid via instalments during the tax year. |
|
| Additional payments can be made in advance if the business is aware that it may make a larger payment at the end of the year. |
|
Yes, you can leave the scheme voluntarily at any time. It is also crucial to remember to leave the Scheme if you’re no longer eligible.
To leave, you must write to HMRC, and they will confirm when you can. Use this address to write to HMRC:
BT VAT
HM Revenue and Customs
BX9 1WR
Remember to start accounting for your VAT in the usual way after HMRC’s leaving confirmation. If you wish to rejoin the Scheme, you must wait 12 months.
Spondoo Accountants can help you with VAT registration, filing and compliance. Our team of experts can also help you determine if a given VAT Scheme is right for your business – including the Annual Accounting Scheme. Call us at 02033 259 341 or e-mail info@spondoo.co.uk for support!
