VAT
VAT
Annual Accounting Scheme
Customs
and Excise has introduced a number of VAT schemes over the
years designed to reduce the administrative burden on small
businesses. One such scheme is the annual accounting scheme.
What
is the Annual Accounting Scheme?
The
annual accounting scheme helps small businesses by allowing
them to submit only one VAT return annually rather than the
normal four. During the year they pay instalments based on
an estimated liability for the year with a balancing payment
due with the return. The scheme is intended to help with budgeting
and cash flow and reduce paperwork.
Joining
the Scheme
A
business can apply to join the scheme if it:
- expects
taxable supplies in the next 12 months will not exceed £150,000
or
- has
been registered for at least 12 months and expects that
taxable supplies in the next 12 months will not exceed £660,000.
Businesses
must be up to date with their VAT returns and cannot register
as a group of companies.
Application to join the scheme must be made on form 600(AA)
which can be found at the back of VAT Notice 732. Customs
will advise the business in writing if the application is
accepted.
Paying
the VAT
Businesses
with annual taxable turnover exceeding £100,000 pay
the VAT in nine monthly instalments of 10% of the previous
year’s liability (unless the business has been registered
for less than 12 months when it is based on the expected liability
for the period). The instalments are payable at the end of
months 4-12 of the current period.
Businesses with annual taxable turnover not exceeding £100,000
make quarterly interim payments of 20% of the previous year’s
liability.
The balance of VAT for the period is then due together with
the VAT return two months after the end of the accounting
period.
All businesses are able to apply to Customs to change the
level of the instalments if business has increased or decreased
significantly.
Leaving
the Scheme
Any
business can leave the scheme voluntarily at any time by writing
to Customs.
A business can no longer be in the scheme once its annual
taxable turnover exceeds £825,000.
Advantages
of the Scheme
- A
reduction in the number of VAT returns needed each
year from four to one.
- Because
the liability to be paid each month is known and certain,
cash flow can be managed more easily.
- There
is an extra month to complete the VAT return and pay
any outstanding tax.
- It
should help to simplify calculations where the business
uses a retail scheme or is partially exempt.
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Potential
Disadvantages
Interim
payments may be higher than needed because they are based
on the previous year. However, they can be adjusted if the
difference is significant.
A business is obliged to notify Customs if the VAT liability
is likely to be significantly higher or lower than in the
previous year.
How
We Can Help
We
can help you to plan your VAT administration and consider
with you whether the annual accounting scheme would be beneficial
for your business.
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For information of users: This material is published
for the information of clients. It provides only an overview
of the regulations in force at the date of publication, and
no action should be taken without consulting the detailed
legislation or seeking professional advice. Therefore no responsibility
for loss occasioned by any person acting or refraining from
action as a result of the material can be accepted by the
authors or the firm.
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