Overview of the annual accounting scheme

By Tolley

The following Value Added Tax guidance note 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
  • Exceeding the limit
  • Interaction with other VAT accounting schemes
  • Leaving the 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.

SI 1995/2518, regs 49–64Notice 732 VATA 1994, Sch 11 paras 2(1) and (11)VATA 1994, s 25(1)De Voil Indirect Tax Service V7.214 (subscription sensitive)VATAAS1000
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:

  • provides certainty in terms of cash flow as the business knows what VAT needs to be paid via instalments during the tax year
  • 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
  • only one VAT return needs to be submitted each year
  • businesses have two months at the end of the tax year to submit the VAT return and balancing payment rather than

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