How the VAT Annual Accounting Scheme Can Benefit Your Business ?
Most businesses that are registered for Value Added Tax (VAT) have to make quarterly VAT returns and payments. This can place extra financial and administrative burdens on small business owners. The VAT Annual Accounting Scheme is designed to help small business owners streamline their operations by allowing them to make VAT payments as usual but to submit only one VAT return per year.
The VAT Annual Accounting Scheme also allows business owners to pay their final VAT bill in instalments. This greatly assists small to medium businesses in managing their cash flows and budgeting and also helps them to reduce their overall paperwork. The Mooncard team have put together this quick guide to provide entrepreneurs and business owners with all they need to know about the benefits of the VAT Annual Accounting Scheme.
Who is eligible for the VAT Annual Accounting Scheme?
Firstly, your business will need to be registered for VAT. A business that has an annual turnover of more than £85,000 must register for VAT payments. To be eligible to join the VAT Annual Accounting Scheme, a business must have a projected taxable turnover for the next financial year of less than £1.35 million. This amount includes the total of all goods or services a business has sold that are not exempt from VAT.
Only a business that is up to date with all its VAT payments and VAT returns can apply to join the VAT Annual Accounting Scheme. Groups of companies (conglomerates) are not eligible and cannot apply to join the scheme. A business that is insolvent cannot join the VAT Annual Accounting Scheme. Likewise, any business that has left the scheme within the past 12 months is also ineligible to re-join.
If your business stops being eligible or achieves an annual turnover of more than £1.6 million, it must leave the VAT Annual Accounting Scheme.
How to join the VAT Annual Accounting Scheme
For any eligible business, the process of joining the VAT Annual Accounting Scheme is straightforward. Application forms (form 600(AA)) can be easily accessed and submitted via the UK government website GOV.UK or by clicking on a link embedded in the online VAT Notice 732. If the application is successful, Her Majesty's Revenue and Customs (HMRC) will advise the business in question in writing within a few weeks that it has been accepted into the scheme.
A business can voluntarily leave the VAT Annual Accounting Scheme at any time it wishes by simply putting such a request in writing and sending it to HMRC.
How to make payments under the VAT Annual Accounting Scheme
If your business is accepted into the VAT Annual Accounting Scheme, you will have the choice of making your VAT payments throughout the accounting year, either on a monthly or quarterly basis. The amount you will have to pay is based on the amount of your last VAT return. If your business has not completed a VAT return, then HMRC will make an estimate of your business’ VAT liability.
A business that has been registered for VAT for more than 12 months can pay their VAT in nine instalments of 10 % of the previous year’s VAT liability. The instalments fall due at the end of the fourth month to the twelfth month of the annual accounting period.
A business that has been VAT-registered for over 12 months can also choose to pay the VAT in three quarterly instalments which are calculated at 25 % of the previous year’s VAT liability. These instalments fall due at the end of the fourth, seventh and tenth months. Any business with a history of fewer than 12 months of VAT returns can choose either method, but as stated, will pay HMRC’s estimate of its VAT liability. The amounts of VAT payments may be adjusted according to the profits of the business.
The accounting period begins at the start of the quarter in which the business made its application to join the VAT Annual Accounting Scheme.
The VAT Annual Accounting Scheme makes managing paperwork and accounting administration simpler and easier. It gives small business owners more time to complete their VAT returns and helps them manage cash flow better. However, the scheme may not be appropriate for a business that regularly reclaims VAT amounts.
Other useful VAT schemes include:
Another way to simplify your VAT accounting procedures is by using Mooncard. Mooncard ensures that all VAT-related transactions are logged and recorded. Find out more about Mooncard by booking a no-obligation, free demonstration.