Call for Assistance: 02033 259 341
Spondoo Accounting
Call for Assistance: 02033 259 341
Spondoo Accounting

VAT Annual Accounting Scheme

July 25, 2022

What is Annual Accounting Scheme? 

The Annual Accounting Scheme is one of HMRC’s VAT schemes designed to help small businesses by providing an increased degree of certainty of cash flows, as well as a reduce compliance burden. Unlike the usual VAT-registered businesses that submit their VAT Returns to HMRC 4 to 12 times a year, businesses under the Annual Accounting Scheme can do the following: 

  • Put forward a VAT return once a year. 
  • Submit advance VAT payments towards their VAT bill depending on their turnover. Established businesses make payments based on their last return, while businesses that are new to the scheme will calculate their payments based payments on their estimated turnover. 

Is my business eligible for the Annual Accounting Scheme? 

Your business can join the Annual Accounting Scheme if: 

  • It is VAT-registered. 
  • Your business’s approximate VAT taxable turnover is £1.35 million or less in the next year.  

However, your business is not allowed to join the Annual Accounting Scheme if: 

  • Your business is insolvent.  
  • 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 left the Annual Accounting Scheme in the last 12 months. 

Feel free to speak to our accountants to see if the Annual Accounting Scheme is good for your business. 

How to join the Scheme 

You can join the Annual Accounting VAT scheme: 

  • Online when you register for VAT. 
  • By post – fill in VAT600 AA (or use VAT600 AA/FRS to apply for the Flat Rate Scheme at the same time) and send it to the following address: 

BT VAT 

HM Revenue and Customs 

BX9 1WR 

HMRC will send a confirmation to your VAT online account (or in the post if you do not apply online) to show you have joined the Scheme.  

Paying VAT under the Annual Accounting Scheme – Payment deadlines and how much to pay 

If you are under the Annual Accounting Scheme: you must make advance payments towards your VAT bill (either monthly or quarterly) during your accounting period – and a Final Payment when you submit your VAT Return. 

Your payments will be due by these dates: 

Payment 

Deadline 

Monthly Due at the end of months 4, 5, 6, 7, 8, 9, 10, 11 and 12 
Quarterly Due at the end of months 4, 7 and 10 
Final Payment Within two months of month 12 

 

How much you pay will depend on your previous VAT returns (if you have been VAT-registered for more than 12 months) or estimated (if you’re new to VAT).  

Each advance payment is either: 

  • 10% of your estimated VAT bill if you make monthly payments. 

OR 

  • 25% of your estimated VAT bill if you make quarterly payments. 

Normally, HMRC will inform you when the instalments are due, and how much you must pay – in writing.  

The final payment (‘balancing payment’) is the difference between your advance payments and the actual VAT bill confirmed on your VAT Return. It is due together with the VAT return two months after the end of the annual accounting period.  

It is important to remember that you may be due a VAT refund – if you have overpaid HMRC. 

Advantages and disadvantages of the Scheme 

This table shows the pros and cons of using the VAT Annual Accounting Scheme: 

Advantages 

Disadvantages 

You only submit one VAT return every year – a reduction from the usual four.  

Interim payments may be higher than needed because they are based on the previous year’s return. However, they can be adjusted if there is a significant difference. 

 

At the end of the tax year – your business will still have two months to submit the Final VAT Return.  

You must remember to notify HMRC if the VAT liability is likely to be significantly higher or lower than in the previous year. 

 

It should help simplify calculations where the business uses a retail scheme or is partially exempt.  

Not suitable for businesses that regularly reclaim VAT because you’ll only be able to get one refund a year (when you submit the VAT Return). 

 

You can easily manage your cash flow because you know the liability to be paid via instalments during the tax year.  

 

Additional payments can be made in advance if the business is aware that it may make a larger payment at the end of the year.  

 

 

Can I leave the Annual Accounting Scheme – How to leave the scheme

Yes, you can leave the scheme voluntarily at any time. It is also crucial to remember to leave the Scheme if you’re no longer eligible. 

To leave, you must write to HMRC, and they will confirm when you can. Use this address to write to HMRC: 

BT VAT 

HM Revenue and Customs 

BX9 1WR 

Remember to start accounting for your VAT in the usual way after HMRC’s leaving confirmation. If you wish to rejoin the Scheme, you must wait 12 months. 

Need help with VAT? 

Spondoo Accountants can help you with VAT registration, filing and compliance. Our team of experts can also help you determine if a given VAT Scheme is right for your business – including the Annual Accounting Scheme. Call us at 02033 259 341 or e-mail info@spondoo.co.uk for support! 

 

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Information provided on the site is merely guidance that may change in line with UK law and regulations. Users must not consider this to be financial advice or their sole resource when making any financial decision. Spondoo is a trading name for Accounting SQL Limited, authorised & license accounting firm under the Institute of Financial Accountants.

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