For eligible businesses, the VAT Annual Accounting Scheme can reduce paperwork, smooth cash flow and replace quarterly returns with a single annual submission.
The VAT Annual Accounting Scheme is open to most businesses with a taxable turnover of up to £1.35 million per year. Businesses using the scheme are required to submit one VAT return per year, rather than quarterly returns. This can significantly reduce the administrative time and cost associated with preparing and filing your VAT returns.
The scheme also allows businesses to make regular interim payments throughout the year, which can help with cash flow management. Interim VAT payments are made during the year based on the business’s estimated total VAT liability for the accounting period.
Interim payments can be made either monthly or quarterly and are followed by a final balancing payment submitted with the annual VAT return. The regular payments are usually based on the previous year’s VAT liability, which means they may be higher than necessary if turnover has fallen.
Where payments are made monthly, they are typically calculated as 10% of the estimated annual VAT bill and are due at the end of months 4 through 12 of the VAT accounting period. Where payments are made quarterly, they are usually calculated as 25% of the estimated VAT liability and are due at the end of months 4, 7 and 10.
The final balancing payment for the annual VAT return is due within two months of the end of the standard 12-month VAT accounting period. If VAT has been overpaid based on the estimated amounts, HMRC will refund the difference. Payments must be made electronically.
