Annual Accounting VAT Scheme

Using annual VAT accounting you make nine monthly or three quarterly interim payments throughout the year. You only need to complete one VAT return at the end of the year when you make a balancing payment or receive a balancing refund.

The same turnover thresholds apply for Annual Accounting as those for Cash Accounting.

If you have been registered for VAT for 12 or more months, your interim payments are based on your previous year’s actual VAT payments, otherwise they are based on an estimate for the coming year.

Pros

Only one VAT return per year to complete.

You get two months rather than one to complete and send in your annual VAT return and pay the balance.

You can better manage cashflow by paying a fixed monthly or quarterly instalment.

Cons

If you regularly reclaim VAT you will only get one repayment per year.

If turnover decreases your interim payments may be higher than VAT payments would be under another scheme and you would have to wait until the end of the year to receive a refund.

To join the annual accounting scheme, you must fill out an application form.

Once you have joined the scheme you must notify HMRC if your VAT payable will increase by at least 10 per cent since the last time your instalments were calculated or if your turnover is expected to be more than £1.6 million.