Businesses that use this scheme are only required to file one VAT return at the end of each year. They will usually make nine interim VAT payments during the year, based on their estimated total liability for the year, followed by one balancing payment with
the return.

You can only apply to join the Annual Accounting Scheme if you anticipate that your taxable supplies in the next 12 months will not exceed £1,350,000. You can join the scheme either at the same time as applying for a new VAT registration or at any subsequent
time.

To qualify to join the scheme, you must be up to date with your VAT payments, solvent and new to the scheme (i.e. you haven’t used annual accounting in the last 12 months).  And your business cannot be a division of a company or a part of a group of companies.

Advantages

Only one VAT return per year needs to be completed. This can significantly reduce the amount of VAT compliance and administrative work.

Businesses using the Annual Accounting Scheme also benefit from having an extra month for submission and payment of the (annual) VAT return. The VAT return can be prepared at the same time as the annual accounts.

The regular interim payments throughout the year can help businesses manage their cashflow.

Disadvantages

The regular monthly (or quarterly) payments are based on the previous year’s liability and may be higher than necessary where turnover has fallen. However, the payments can be reduced if the difference is significant.

You may have greater difficulty in remembering the nature of unusual transactions if you are not maintaining your accounting paperwork correctly throughout the year, as is required for normal quarterly accounting.

Seasonal or other variations may have an adverse effect on cashflow.

Businesses that regularly reclaim VAT are unlikely to be suited to the scheme as they would only get one VAT repayment per year.

Please call if you would like us to see if this scheme would be suitable for your business.

Source: New feed