Business owners who have got their companies registered for VAT usually submit their returns to the HMRC at least 4 times a year.
Nonetheless, if you are entitled, you can simply sign yourself up for the annual VAT Accounting Scheme. This is one such scheme that lets businesses handover their yearly VAT return just once rather than submitting it four times.
We understand that all of this might seem to be quite confusing, especially if you aren’t a qualified small business accountant. Well, that is why in this article we’ve compiled a list of important points covering the nuts and bolts of VAT and every other thing that you must know before getting done with the registration.
So, without further ado let’s get going!
How does the scheme work?
Once you sign up for the annual Accounting Scheme, you become eligible to pay all your VAT bills beforehand, that is by breaking it down to either quarterly or monthly payments. The amount that you’ll be asked to pay would be on the basis of your preceding year’s VAT return. But, if you’ve just started making VAT payments, then you’ll be given an approximate amount to pay.
If you opt to make your payments on a quarterly basis, then you’ll be required to shell out 25% of the approximate amount. But, if you decide to pay every month, then you’ll be asked to pay only 10% of the estimated amount.
Under this scheme, every year you’ll be asked to complete 1 VAT return. When you’re about to submit it, along with you’ll be making one final payment – known as the balance amount – which has to be compensated after 2 months, that is after your accounting period ends. By paying the remaining amount, you’re basically clearing the difference between the total amount of your bill and the money that’s already paid.
On the other hand, if valid, you can also claim for a repayment provided you uncover that you’ve paid more than what’s required.
Which businesses can join?
Business owners who have got their companies registered for VAT and have an approximate turnover of £1.35m or maybe less than that inside that coming 12 months, can sign up for the Annual Accounting Scheme. But, bear in mind, this amount does not include the charges of any anticipated deals from capital resources.
However, there are certain limitations when it comes to this scheme, meaning you won’t be able to sign up for it, provided:
- You withdrew from the scheme within the twelve months
- You aren’t bang up to date in regards to VAT returns and payments
- Your firm comes under a group of companies or a specific VAT registered division
- Your company is bankrupt
On a side note, you can be forced to step out of the scheme by the HMRC, provided you do not pay your bills on time (except for when things are not under your control) or submit the VAT return before the time bar.
What are the pros and cons of signing up for the scheme?
As it is with any and every HMRC scheme, even VAT Annual Accounting Scheme comes with
its own advantages and disadvantages.
The pros of signing up are:
- It helps you decrease the workload
- You get one month extra to get done with your VAT returns and payments
- You can simply set up direct debit to make necessary payments. Or else you can also select any mode of electronic payment, which you find is convenient for you
- It simplifies the entire process, thereby making it easier for you to understand what amount needs to be paid on a quarterly or monthly basis
Alternatively, some of its disadvantages are:
- You’ve got to inform the HMRC if you find that your VAT responsibility is perhaps going to be lower or higher as compared to the preceding year
- You can claim for a repayment only once in an entire year and not in regular intervals
- Odds for imprecise payments are high, since the amount is completely based on the money that you paid in the last year. For instance, even though your turnover decreases, you’ll be asked to pay the same rate that you agreed to till the very end, when you can finally claim for a repayment
These points might be appropriate only for certain companies; so, it’s better to weigh up the consequences before you sign up for it.
How can businesses join and leave the scheme?
If you’ve made up your mind to sign up for this scheme (and if you’re entitled to do so), then all you need to do, is to go to HMRC’s website sign yourself up online. But you can do that only if you’ve already registered your business for VAT.
Conversely, you can even join it by submitting a VAT600 form. In certain situation, you’ll have to apply for the same through post, for instance if you’re applying for registration exception.
Well, when it comes to leaving the scheme, you’ve got to do that immediately if you are no more entitled to be a part of it – for example, if your business’s revenue surpasses £1.35m limit. You could even leave it on your own accord, if you find that it isn’t really working out for your business.