Annual Accounting VAT Scheme

Overview

For many small and medium sized businesses, keeping the company’s financial affairs up to date can seem like an ever increasing challenge. One of the most time consuming tasks is often the preparation and submission of quarterly VAT returns. If you are looking to decrease the time you spend on admin and your company’s taxable turnover is £1.35m or less per annum, the Annual Accounting Scheme could be for you.

What is the scheme?

Unlike the usual requirement to file one VAT return per quarter, under the Annual Accounting VAT Scheme, only one VAT return needs to be submitted per year. Instead of quarterly payments to HMRC, advance monthly payments are made (either based on the company’s previous VAT return, or based on an estimate if the company has not previously paid any VAT). When the final VAT return is submitted at the end of the year, the company will either need to make a final payment (if there is a shortfall) or apply for a refund to claim back any overpaid VAT.

Who is the scheme for?

There are a number of conditions which a company must satisfy to register for the scheme:

  • Turnover from taxable supplies must not exceed £1.35m
  • The company must not have previously left the scheme in the last 12 months
  • The company must currently be up to date with VAT returns/payments
  • The company must be solvent

The scheme would suit any business looking to either reduce its level of paperwork, or for businesses looking to budget and manage cash flow more closely (as payments are fixed each month/quarter). The scheme also allows businesses an extra month to complete the return following the end of the accounting period (compared with standard VAT returns).

However, the scheme is not likely to be suitable for businesses which often find themselves in a VAT repayment position, as the refund can only be reclaimed once a year.

Submission and payment deadlines

Under the scheme, the annual VAT return must be submitted within two months following the end of the company’s accounting period.

There are two options with regards to the payments to HMRC; these can either be spread over ten months, with each payment amounting to 10% of the total estimated VAT bill, or these can be paid in four equal quarterly installments (each payment being 25% of the estimated total annual bill).

The final payment (if applicable) must be paid within two months of the end of the company’s accounting period.

If you want to know more about the scheme or believe that your business could benefit from the scheme, please feel free to talk to us today.

 

Blog written by: Hannah Black

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