VAT Annual Accounting Scheme

The annual accounting scheme permits businesses to submit VAT returns once a year. This is opposed to the normal frequency of every three months which is applicable to most companies by default.

This is designed to relieve some of the administrative effort needed to maintain and run a scheme.

Annual accounting is normally open to you if you do not expect your taxable turnover to exceed £1,350,000 in the next twelve months.

You have to apply to use the scheme, using form VAT600.

You may withdraw from the scheme voluntarily at any time by application in writing to your local VAT office.

The advantages of annual accounting are:

  • Only one VAT return per year, with an extra month for submission
  • The return can be prepared at the same time as the annual accounts
  • Cashflow is known in advance
  • Monthly payments spread the load
  • It simplifies the operation of retail or partial exemption schemes

Possible disadvantages are:

  • Interim payments based on previous years may be higher than necessary (but can be reduced if the difference is significant)
  • Seasonal or other variations may create an adverse effect on cashflow

How the Payments are Structured

Businesses will make either:

  • nine monthly interim payments of 10% of the previous year’s VAT payments (or 10% of their estimated payments if registered for less than a year), commencing on the last day of the fourth month of the VAT year, or
  • three quarterly interim payments of 25% of the previous year’s VAT payments (or 25% of their estimated payments if registered for less than a year)

according to which method best suits their needs. However, the monthly method will be applied unless the quarterly method is specifically requested.

In both cases, the interim payments may be adjusted to take into account any expected changes in turnover and trading. The balance of VAT due for the year is payable two months after the year end, together with submission of the VAT return.

Payments must be made by direct debit, or by a choice of electronic payment methods.

Should your turnover exceed £1,350,000 then there is a tolerance built into the scheme. Once you are using annual accounting, you can normally continue to use it until the end of the year in which the value of your taxable supplies exceeds £1,600,000.