As the name suggests, VAT annual accounting is an HMRC scheme, that allows you to submit a single VAT return each year instead of the usual four. Although this may seem appealing it is important to know that by going into the scheme, you will make fixed payments plus an annual balancing payment. Monthly payments are the norm, but you can ask HMRC to go quarterly. If you have decided to go into the scheme your monthly or quarterly payments are based on your VAT bill for the previous 12 months. This means if your turnover is growing you gain another cash-flow advantage.
JOINING THE SCHEME
You can apply directly to HMRC to use the annual accounting scheme, if you expect to make VATable supplies of up to £1,350,000 (excluding VAT) in the next 12 months. You will not be able to apply if you are registered for Valued Added Tax as part of a group, have stopped using annual accounting in the previous twelve months or owe VAT which is overdue.
CHOOSING YOUR DATE CAREFULLY
You can pick the right date that will suit your business, for example if your business is seasonal, choosing an annual return period that starts at the beginning of the seasonal boom can give you a cash-flow advantage so gives you the best result.
BEWARE OF A REDUCING TAX BILL
If the VAT payable for a year is less than the previous one, say because of falling turnover or increased purchases, your fixed payments under the annual accounting scheme will exceed your actual liability. If for any reason you think this may apply to you can apply to HMRC to reduce your payments.
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