If you find it difficult to manage quarterly payments to HMRC to settle your VAT, why not consider the VAT Annual Accounting Scheme (AAS)?

Not sure what that means? Let me explain…

With the AAS you:

  • make nine payments on account towards your annual VAT bill – based on your last returns (or estimated if you’re new to VAT), and
  • submit one 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, or
  • apply for a refund – if you’ve overpaid your VAT bill.

The AAS scheme wouldn’t suit your business if you regularly reclaim VAT because you’ll only be able to get one refund a year (when you submit the VAT Return). You can also only join the scheme if your estimated VAT taxable turnover is £1.35 million or less.

However, smoothing the cash flow impact of VAT payments can be helpful as is submitting one VAT return a year instead of four returns.

The annual return, and any balancing payment, need to be submitted within two months of the annual year end date for VAT purposes.

But be aware – there are exceptions.

If your VAT taxable turnover is (or is likely to be) more than £1.6 million at the end of the annual accounting year then you must leave the scheme. You also 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 are not up to date with your VAT Returns or payments
  • you are insolvent.

Tax planning can be a chore but it’s a huge part of keeping your business afloat, and definitely a worthwhile investment of your time.

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