The Annual Accounting Scheme for VAT

If you are looking for ways to reduce your paperwork and to easily manage your cash flow, then setting up an Annual Accounting Scheme for VAT for your business may just be what you need. Standard VAT accounting requires that you complete four returns each year; all dues are payable quarterly along with returns, which are repayable quarterly. With the Annual Accounting Scheme you will only need to complete one return at the end of year and payments can either be three quarterly interim or nine monthly interim.
Of course, there are stipulations on where or not your business is eligible for this scheme. You will NOT be allowed to use this if:
1. Your estimated VAT taxable turnover is more than £1.35 million per annum.
2. You are registered for VAT as a division of a company or as part of a group.
3. You have previously used Annual Accounting within the last twelve months.
4. You are behind on your VAT payments.
5. You are insolvent.
As with any system, there are pros and cons to this scheme. On the plus side, you will only need to complete one VAT Return each year. Also, you will have two months, instead of one, to complete and send in your annual return and any money due. If you would like, the option is there to set up fixed monthly or quarterly payments which can help you to manage your cashflow. Additional payments can be made as and when you choose. Moreover, you are able to join from the day you register for VAT.
The downside of this program is that you will only get one repayment each year, which can be hard for those that regularly reclaim their VAT. And, if your turnover suddenly decreases, your interim payments could potentially be higher than you would normally pay using the Standard VAT Accounting. This will only be adjusted at the end of the year, when you receive your refund.
If you would like to join the Annual Accounting Scheme, you will be required to fill out the appropriate application form. Use form VAT 600 AA for joining only this scheme. For those that would like to also join the Flat Rate Scheme, you are able to do so at the same time as the Annual Accounting Scheme by completing the form VAT 600 AA/FRS.
Send completed forms to:
HM Revenue and Customs Imperial House 77 Victoria Street Grimsby DN31 1DB
Please notify HMRC of any significant changes which may affect the amount of VAT you pay. Examples of this include:
1. If your turnover is, or is likely to be, higher or lower than the previous year
2. If your taxable turnover is or is projected to be higher than £1.6 million
3. If your VAT payments have increased by at least 10% since the last time that your installments were calculated.
You are free to leave this scheme whenever you choose, though you will be barred from joining again for twelve months. HMRC have the right to remove you from this scheme if you calculate your VAT incorrectly, if you are convicted of a VAT offence or is you are assessed for a penalty for VAT evasion.
Annual returns are to be completed in exactly the same way as quarterly returns, except for the fact that after you have calculated the annual VAT payment due, you can then deduct the interim payments that you have already made to find your end-of-year balancing payment due to you or HMRC.