VAT Annual Accounting Scheme
Are you finding the need to file quarterly VAT returns cumbersome? Want to be in a position where filing a VAT Return occurs only once a year? Then we’ve got good news for you. HMRC’s Annual Accounting Scheme enables businesses with an expected turnover of underneath £1.35 million for the next year to file their VAT Returns just once a year.
Your business will have 2 months following the end of the relevant period to submit the VAT Return. This should suit owners who’re especially time constrained throughout the year as they need only go through the headache of providing the necessary invoices and business documents once a year to their accountant. Although care should be taken to allow the accountant enough time to capture all this data and prepare the return to an acceptable standard. Hence, it’s often advisable not to provide all the paperwork at once.
There are caveats though with the working of the Annual Accounting Scheme. Although the VAT Return needs to only be submitted once a year, payments will be expected to be made at a more frequent interval. Businesses have 2 options in this regard. They can make 9 monthly installments, each constituting 10% of the previous year’s VAT liability. This will be between months 4 to 12 of their accounting period. The alternative is to make 3 payments, each being 25% of the previous year’s VAT liability in months 4,7 and 10 of the accounting period. The final payment, being the remaining VAT due which will be known by the end of the accounting period, must be made 2 months after the accounting period ends.
For businesses who’re not yet VAT registered or who’ve not been VAT registered for over a year, HMRC will estimate the amount to be paid. You may be wondering whether it’s indeed beneficial to register if payments still have to be made regularly rather than just once a year. And you would be right if your VAT position is generally in a reclaim or if in your annual taxable turnover (and as a consequence Output VAT) has been declining over the years. In such situations, the scheme will not be beneficial since you would have to wait a year before receiving the refund or pay higher instalments than what the actual VAT liability will be since turnover is declining.
However, it can be invaluable to businesses who struggle to plan cash flow due to fluctuations in VAT each quarter. Since the payments are based on a percentage of the previous year’s VAT liability, it can facilitate budgeting immensely and you may even be able to set up a Direct Debit or Standing Order so you don’t have to manually make the payments. Additionally, the scheme can be used along with the Flat Rate Scheme or Cash Accounting Scheme. Note though that once your taxable turnover exceeds £1.6 million, you must leave the scheme.
To find out more about Annual Accounting Scheme and other options available to your business in regard to VAT as well as other tax-related matters, contact Cheylesmore Accountants today to enable us to optimize your company’s operations so you can focus on what you love most. Trusting us with number-crunching and accounting should enable you to supercharge growth by focusing on different avenues for earnings growth.