Overview of the annual accounting scheme

Produced by Tolley

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Overview of the annual accounting scheme
  • Main principles
  • Scheme advantages
  • Scheme disadvantages
  • Businesses who cannot join the scheme
  • Conditions
  • Joining the scheme
  • Flat rate scheme
  • HMRC address
  • HMRC Confirmation letter
  • More...

Overview of the annual accounting scheme

This guidance note provides an overview of the main principles regarding the annual accounting scheme. It should be read in conjunction with the Operating the annual accounting scheme guidance note.

Main principles

The annual accounting scheme enables qualifying businesses to submit one VAT return each year. The business will need to pay its annual VAT liability via nine monthly or three quarterly instalments during the tax year. The payments must be made by either direct debit, standing order or another form of electronic payment.

When a business joins the scheme, HMRC will calculate the instalment amount and due date. If the business disagrees with the amount calculated or the business activities change, it should write to HMRC to request that the value of the instalments is amended (see below for contact details).

Businesses are entitled to make additional voluntary contributions towards their annual VAT liability if desirable.

At the end of the tax year the business will need to submit a VAT return together with any balancing payment due.

Scheme advantages

The following are the main benefits:

  1. provides certainty in terms of cash flow as the business knows what VAT needs to be paid via instalments during the tax year

  2. additional payments can be made if the business is aware that it may have to make a larger payment at the end of the year

  3. only one VAT return needs to be submitted each year

  4. businesses have two months at the end of the tax year to submit the VAT return and balancing payment rather than one

  5. the VAT return stagger can be aligned to the financial year end in order to simplify year end accounting requirements / obligations


Scheme disadvantages

The following need to be considered before deciding to use the scheme:

  1. the requirement to submit quarterly VAT returns and payments helps to ensure that the books and records are kept up to date

  2. instalments must be paid electronically and businesses do not get the seven

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