VAT – Annual Accounting Scheme
VAT – Annual Accounting Scheme
At AHACCOUNTANTS, we can advise small businesses in the Nottingham area about the VAT Annual Accounting Scheme, which simplifies the VAT process by allowing businesses to submit only one VAT return annually instead of the usual four. This scheme helps with budgeting, cash flow, and reduces paperwork.
What is the Annual Accounting Scheme?
The Annual Accounting Scheme enables small businesses to submit a single annual VAT return. During the year, businesses pay instalments based on an estimated VAT liability, with a balancing payment due when submitting the return. This scheme is designed to ease administrative burdens and improve cash flow management.
Joining the Scheme
To join the scheme, a business must expect its taxable supplies in the next 12 months to be under £1,350,000. Additionally:
- Businesses must be current with their VAT returns.
- Group registrations for companies are not permitted.
To apply, complete form 600(AA), available on the GOV.UK website or through VAT Notice 732. HMRC will provide written confirmation of acceptance.
Paying the VAT
Businesses registered for at least 12 months will pay their VAT in:
- Nine monthly instalments of 10% of the previous year’s liability, payable at the end of months 4-12 of the current accounting period.
- Alternatively, three quarterly instalments of 25% of the previous year’s liability, due at the end of months 4, 7, and 10.
For businesses registered for less than 12 months, instalments will be based on an estimate of the VAT liability. HMRC will advise on the instalment amounts.
The annual accounting period typically begins at the start of the quarter in which the application is made. If the application is made late in a quarter, it may begin at the start of the next quarter. Businesses can apply to adjust instalment levels if there are significant changes in business activity.
Leaving the Scheme
Businesses can voluntarily leave the scheme at any time by notifying HMRC in writing. A business will no longer qualify for the scheme once its annual taxable turnover exceeds £1,600,000.
Advantages of the Scheme
- Fewer Returns: Reduces the number of VAT returns from four to one annually.
- Predictable Payments: Monthly payments are known in advance, making cash flow management easier.
- Extra Time: An additional month is provided to complete the VAT return and pay any outstanding tax.
- Simplified Calculations: Simplifies VAT calculations for businesses using retail schemes or those that are partly exempt.
Potential Disadvantages
- Higher Interim Payments: Payments may be based on the previous year’s liability, potentially leading to higher interim payments. Businesses can request an adjustment from HMRC if the difference is significant.
- Obligation to Notify HMRC: Businesses must notify HMRC if the VAT liability is expected to differ significantly from the previous year.