How to make the most of your VAT registration – part 3

How to make the most of your VAT registration – part 3

Annual Accounting


The first of these articles appeared on the Lime Consultancy website and the second on this blog.

In the last two notes I wrote about the Flat rate scheme and the Cash Accounting scheme. This time I want to tell you about the Annual Accounting scheme. The VAT Notice you will need for this scheme is Notice 732.

Under this scheme you only do one VAT return a year. It is more usual to do one every three months, and in some cases returns are done monthly. You have longer to submit your VAT return after the end of the year and pay any outstanding VAT. This, as you no doubt guessed, means that you have to make payments on account during the year. Your VAT period can be aligned with your financial year end which may simplify your year end accounting routines.

How to join the scheme

You have to apply to join the scheme so HMRC can make sure you are asked to do your VAT return only once a year.

The conditions for joining the scheme are:

  1. Your expected turnover in the 12 months from the date of applying to join will be no more than £1,350,000.00.
  2. You are a single legal entity. Members of VAT groups will be excluded from the scheme.
  3. If you were using the scheme in the 12 months before applying to use the scheme your application will be rejected.
  4. If you have a VAT debt you may be refused admission to the scheme, although if you agree how you will clear the debt with HMRC you may be allowed to join.

You will need to complete an application form and send it to HMRC. The Form you use will depend on whether:

  • you are only joining the annual accounting scheme – form VAT600(AA); or
  • you are applying to join both the annual accounting scheme and the Flat rate scheme – form VAT600(AA/FRS).

When you are accepted into the scheme HMRC will tell you:

  • the amount to be paid and the dates for each interim payment;
  • the method of electronic payment chosen; and
  • the due date for submission of the return and payment of any balance due.

When you first join the scheme your first Annual return may be for a period of less than 12 months, and is referred to as the transitional accounting period. This will have an impact on the interim payments made in this period. For this reason I recommend you choose to pay by direct debit.

Rather than make this over long the last thing I’ll mention is the payments on account. You can choose whether to make payments on account of either:

  • 25%; or
  • 10%

of the VAT due in the previous year, or if you have been VAT registered for less than 12 months, an amount based on how much your business will pay in the next 12 months.

Where the payments are for 25% these are taken on the last working day of the fourth, seventh and tenth months. For payments of 10% there are nine payments, the first being on the last working day of the fourth and subsequent months of the annual accounting year.

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