VAT Annual Accounting Scheme
1. Overview
Usually, VAT-registered businesses submit their VAT Returns and payments to HM Revenue & Customs 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)
- submit 1 VAT Return a year
When you submit your VAT Return you either:
- make a final payment - the difference between your advance payments and actual VAT bill
- apply for a refund - if you’ve overpaid your VAT bill
The scheme wouldn’t suit your business if you regularly reclaim VAT because you’ll only be able to get 1 refund a year (when you submit the VAT Return).
You can join the scheme if your estimated VAT taxable turnover is £1.35 million or less.
2. Join or leave the scheme
You must be eligible to join the scheme.
How to join
You can join the scheme:
- online - when you register for VAT
- by post - send a form VAT600 to HM Revenue & Customs (HMRC), the address is on the form
Download 'Form VAT600 AA - Annual Accounting Scheme application' (PDF, 65KB) Download 'Form VAT600 AA/FRS - Joint application for Flat Rate and Annual Accounting Schemes' (PDF, 85KB)
Confirmation you’ve joined the scheme is sent to your VAT online account (or in the post if you don’t apply online).
How to leave
You can leave the scheme at anytime, but you must leave if you're no longer eligible to be in it.
To leave, write to HMRC and they will confirm when you can leave. From this date, you must account for your VAT in the usual way.
You have to wait 12 months before you can rejoin the scheme.
HM Revenue & Customs
Annual Accounting Registration Unit
Imperial House
77 Victoria Street
Grimsby
DN31 1DB
3. Eligibility
You can join the Annual Accounting Scheme if:
- you’re a VAT-registered business
- your estimated VAT taxable turnover is £1.35 million or less in the next 12 months
VAT taxable turnover is the total of everything sold that isn't VAT exempt.
Exceptions
You can’t use the scheme if:
- you left the scheme in the last 12 months
- your business is part of a VAT registered division or group of companies
- you’re not up to date with your VAT Returns or payments
- you’re insolvent
Leaving the scheme
You must leave the scheme if:
- you’re no longer eligible to be in it
- your VAT taxable turnover is (or is likely to be) more than £1.6 million at the end of the annual accounting year
4. Return and payment deadlines
Check your VAT Return and payment deadlines in your HMRC online account.
VAT Return deadline
There are 12 months in your VAT accounting period. Your VAT Return is due once a year, 2 months after the end of your accounting period.
Payment deadlines
You must make advance payments towards your VAT bill (either monthly or quarterly) during your accounting period and a final payment when you submit your VAT Return.
| Payment | Deadline |
|---|---|
| Monthly | Due at the end of months 4, 5, 6, 7, 8, 9, 10, 11 and 12 |
| Quarterly | Due at the end of months 4, 7 and 10 |
| Final payment | Within 2 months of month 12 |
How much do you pay
Each payment is either 10% of your estimated VAT bill (monthly payments) or 25% (quarterly payments). The amount is based on previous VAT returns (or estimated if you’re new to VAT).
HMRC will write telling you when your instalments are due and how much they’ll be.
The final payment (known as a ‘balancing payment’) is the difference between your advance payments and the actual VAT bill confirmed on your VAT Return.
You may be due a VAT refund if you’ve overpaid HMRC.
You must pay VAT to HMRC electronically, eg direct debit or internet banking.