What is the VAT Annual Accounting Scheme?

Usually, VAT-registered businesses submit their VAT Returns and payments to HMRC 4 times a year. With the Annual Accounting Scheme you make advance VAT payments towards your VAT bill – based on your last return (or estimated if you’re new to VAT) and submit just 1 VAT Return a year.

Ian Orgill, Director at CHW explains the ins and outs of the VAT Annual Accounting Scheme.

When you submit your VAT Return you either make a final payment which is the difference between your advance payments and actual VAT bill or apply for a refund if you’ve overpaid your VAT bill.

You are eligible to join the Annual Accounting Scheme if you’re a VAT-registered business with estimated VAT taxable turnover of £1.35 million or less in the next 12 months. VAT taxable turnover is classed as the total of everything sold that is not VAT exempt.

There are exceptions and you cannot use the scheme if you left the scheme in the last 12 months or you are not up to date with your VAT Returns or payments, or if you’re insolvent.

You have to leave the scheme if your VAT taxable turnover is (or is likely to be) more than £1.6 million at the end of the annual accounting year.

There are some advantages to adopting this scheme. For example, there’s less admin involved, as you’re only filing a VAT report once per year and cash flow is easier to manage, as you know how much you’ll pay out each month.

The scheme would not suit your business if you regularly reclaim VAT because you’ll only be able to get 1 refund a year.

For more advice contact us.


This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.

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