vat annual accounting scheme

VAT Annual Accounting Scheme 2023

If you own a small business in the UK, the annual accounting scheme for VAT could play a significant role. Therefore, understanding various accounting schemes is essential since picking the right one might save you time and effort. Although there are combinations of accounting schemes, we will learn about these schemes in this post.

Businesses registered for VAT must submit the returns four times a year under the standard accounting scheme. It helps large businesses while overburdening smaller ones. Therefore, HMRC has introduced the VAT annual accounting scheme to lessen the administrative load on small enterprises.

This scheme streamlined the process by enabling small businesses to submit single VAT returns and pay installments against their total VAT liability. It is also how it reduces their copious paperwork. Further, it helps them balance their cash flow through easy installments. HMRC introduced one of the finest schemes to assist small enterprises.

How to join the VAT Annual Accounting Scheme

Any VAT-registered company can join the annual accounting scheme if its taxable purchases are likely to be at most 1.35 million over the next twelve months. However, you cannot enter the plan if you have already left it within the last twelve months.  You must also update your VAT payments and returns to continue using this scheme. HMRC‘s online service or VAT Form 600AA can be used to join the project. However, businesses can notify HMRC under the following conditions;

  • When their annual turnover is either higher or lower than the prior year
  • When taxable purchase reaches above 1.6 million euros
  • When the amount of VAT is increased by 10% since the last computed one

What is the method of paying for it?

After joining this scheme, you can make advance payments in monthly or quarterly installments and the balance payment once you file your VAT return. If your company is new to VAT, your pay will be estimated. If you want to pay every month, 10% of the estimated final VAT will be required at the end of months 4 through 12.

However, in the case of quarterly installments, 25% of the final bill is payable at the end of months 4,7 and 10. Then the balancing payment will be made after two months of your annual accounting year. 

Advance payments have the following deadlines;

Payment intervalsDeadline for paymentsInstallment amount
Monthly End of months 4 through 1210% estimated VAT bill
Quarterly At the end of months 4,7 and 1025% of the estimated bill
Final paymentWithin two months of the accounting yearBalancing amount if VAT is due
payment dates

Advantages and Disadvantages of VAT annual accounting scheme

Following are the perks and pitfalls of this scheme.


The scheme offers several benefits;

  • It lessened the administrative burdens of the businesses, making it more straightforward.
  • Reduced VAT returns from four to one annually 
  • It gives extra time for annual VAT returns 
  • Balances cash flow through easy installments 
  • If you paid more VAT, you could easily reclaim HMRC


The following are the disadvantages of the annual accounting scheme;

  • You can request payback once a year, which is not advantageous for businesses that make regular VAT returns.
  • These payments are based on the prior year; therefore, you must pay the same amount if this year’s turnover is lower.


Q.1 When can I leave the scheme?

You can leave the scheme anytime when your taxable purchases exceed the limit of £1.35 million. Moreover, if other eligibility exceptions apply to your business, you must immediately quit the scheme.

Q.2 How does the annual accounting scheme differ from the flat rate scheme?

In this scheme, you must pay advance payments in installments, while flat rate schemes must pay a percentage of annual turnover.

Q.3 Which companies do not use annual accounting schemes?

This scheme is unsuitable for companies that frequently claim VAT because it permits claims once a year, which can deter their concerns differently.


HMRC launched the annual accounting scheme to help small firms. The purpose of this scheme was to uplift businesses by reducing their copious paperwork. It enables them to pay the returns once a year, which helps them get rid of lengthy VAT records. However, it is not advisable for large firms that claim VAT regularly. 

Also Read

VAT Calculator UK

VAT Retail Schemes

VAT Margin Scheme


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