Is the Annual Accounting Scheme Right for Your Business?
If you’re a VAT-registered business in the UK, you usually submit VAT returns and payments to HM Revenue and Customs four times a year. But there’s another option called the Annual Accounting Scheme, which might be a good fit for businesses with a taxable turnover of £1.35 million or less. Let’s take a closer look at unlocking VAT simplification and whether it could suit your business.
How does the Annual Accounting Scheme work?
Eligibility: If your business expects a turnover of £1.35 million or less, you can usually join the scheme.
- Annual VAT Return: Instead of filing quarterly, you only do it once a year, covering the whole 12-month period.
- Payments: You make either nine monthly or three quarterly payments towards your VAT throughout the year. These payments are based on an estimate of your annual VAT bill.
- Adjustments: At the end of the period, you subtract the payments made from the VAT owing on the return. If you’ve underpaid, you need to pay the difference. If you’ve overpaid, you can carry it forward to the next year or ask for a refund.
- Application: You sign up through HMRC, and you stay in until you choose to leave or if your turnover goes over the threshold.
Why might the unlocking VAT simplification be good for you?
- Less Admin Work: With just one VAT return a year, your admin load goes down.
- Better Cashflow: Monthly or quarterly payments help with budgeting and planning compared to fluctuating quarterly payments.
- Lower Penalty Risk: Fewer deadlines mean less chance of missing submissions and getting penalties.
- Consistent Reporting: If your VAT stays stable, this scheme makes reporting simpler and reduces the need for changes.
Why might you skip the scheme?
- Overpaying: Fixed payments based on estimates might mean you pay more VAT than you need to.
- Cash Flow Issues: Regular payments might strain your cash flow, especially if your sales go up and down.
- Less Flexibility: It’s hard to adjust payments during the year, especially if your sales change a lot.
- No Interest on Overpayments: Unlike having money elsewhere, overpaid VAT at year-end doesn’t earn interest.
Unlocking VAT Simplification Summary
Deciding if the scheme fits your business depends on your situation. While it works well for some, others might prefer the traditional quarterly reporting. For advice please speak to a member of the WBV, Swansea or Neath, team. https://wbvaccountants.co.uk/contact-us/
More information on How VAT Works can be found on the Gov.uk website – https://www.gov.uk/how-vat-works/vat-schemes
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