Typically, most VAT-registered businesses submit their VAT Returns and payments to HM Revenue and Customs quarterly. By choosing the Annual Accounting Scheme for VAT, you eliminate the need to file quarterly VAT returns. However, there are other factors to consider, which are discussed below.
How does Annual Accounting for VAT work?
If you opt for the Annual Accounting Scheme for VAT, you will:
- Make advance VAT payments based on your previous return (or an estimate if you are newly VAT registered).
- Submit one VAT Return per year.
Upon submitting your annual VAT Return, you will either:
- Make a final payment to cover the difference between your advance payments and your actual VAT liability.
- Apply for a VAT refund if you have overpaid your VAT liability.
How to join and leave the Annual Accounting Scheme?
You can apply to join the scheme online when you register for VAT or at any later date. Confirmation of your enrolment in the scheme will be sent to your VAT online account. You can leave the scheme at any time, but must do so if you become ineligible.
You must leave the scheme if you are no longer eligible or if your VAT taxable turnover exceeds (or is expected to exceed) £1.6 million by the end of your annual accounting year.
To exit the scheme, write to HMRC at the following address, and they will confirm your exit date. From this date, you will need to account for your VAT in the standard way:
BT VAT
HM Revenue and Customs
BX9 1WR
Eligibility for the Scheme
You can join the Annual Accounting Scheme if:
- You are a VAT-registered business with an estimated VAT taxable turnover of £1.35 million or less in the next 12 months. The VAT taxable turnover includes all sales that are not VAT exempt.
However, you cannot use the scheme if:
- You left the scheme within the last 12 months.
- Your business is part of a VAT-registered division or group of companies.
- You are not up to date with your VAT Returns or payments.
- You are insolvent.
Conclusion
While annual accounting can reduce your administrative workload, it may not be suitable for all businesses. Carefully consider your decision to join the scheme. For instance, if your business frequently reclaims input VAT, the scheme may not be beneficial as you will only be able to get a refund annually when you submit your VAT Return.
