VAT Annual Accounting scheme
The VAT annual accounting scheme is open to most businesses with a turnover of up to £1.35m per year. The main benefits of the scheme include the requirement to file only one VAT return per year. This can significantly reduce the amount of administration time and the associated cost of preparing and submitting quarterly VAT returns.
The scheme is aimed at small businesses. It can either be combined with the flat rate scheme or used by a business which uses standard VAT accounting. The scheme also has the benefit of allowing a business to make regular interim payments throughout the year which can help businesses manage their cashflow.
Businesses will make interim VAT payments during the year, based on their estimated total liability for the year. This can be done either monthly or quarterly. These payments are followed by one balancing payment which is submitted with the annual VAT return. This also means that businesses using the scheme are not faced with a large VAT bill at the end of the year.
The regular monthly (or quarterly) payments are based on the previous year’s liability and may be higher than necessary where turnover has fallen. However the payments can be reduced if the difference is significant. The final payment for the annual return is due within 2 months after the end of the 12 month VAT accounting period.
The VAT Annual Accounting Scheme is open to most businesses with a turnover up to £1.35m per year. The scheme has been designed to allow businesses to simplify their VAT accounting procedures and in turn reduce the cost of complying with the VAT requirements. Businesses that use the scheme are only required to file one VAT return at the end of each year. Businesses usually make nine interim VAT payments during the year, based on their estimated total liability for the year, followed by one balancing payment with the return.
Advantages & Disadvantages of the scheme:
- Only one VAT return per year needs to be completed. This can significantly reduce the amount of VAT compliance and administrative work.
- Businesses using the Annual Accounting Scheme benefit from having an extra month for submission and payment of the (annual) VAT return.
- The VAT return can be prepared at the same time as the annual accounts.
- The regular interim payments throughout the year help businesses manage cashflow.
- The regular monthly (or quarterly) payments are based on the previous year’s liability and may be higher than necessary where turnover has fallen. However the payments can be reduced if the difference is significant.
- Businesses may have greater difficulty in remembering the nature of unusual transactions if they are not maintaining their accounting paperwork correctly throughout the year, as is required for normal quarterly accounting.
- Seasonal or other variations may have an adverse effect on cashflow.
- Businesses that regularly reclaim VAT are unlikely to be suited to the scheme as they will only get one VAT repayment per year.