Combining the Flat Rate VAT & Annual Accounting

Combining the flat rate VAT scheme and annual accounting scheme can be advantageous both for cash flow and simplify VAT reporting.

Updated 20 July 2021

1. The Advantages of Combining the VAT Flat Rate and Annual Accounting Schemes

Joining both the VAT Flat Rate and Annual Accounting Scheme can be advantageous for eligible VAT registered businesses since they:

• Only need to file one VAT return a year;
• Benefit from better cash flow because they pay VAT to HMRC at a fixed amount each month (under annual accounting) and paying a lower VAT percentage (under the flat rate VAT scheme)

2. Disadvantages of Joining the VAT Flat Rate and Annual Accounting Schemes

Joining both schemes doesn’t benefit every business, here’s some reasons why:

• Monthly payments are based on reasonable estimates, but if there is a dip in income they can find themselves making monthly VAT payments that are higher than required (although you can apply to HMRC to change monthly payments, there is no guarantee they will do this and it make take some time to make the changes);
• If you find yourself making unexpected capital purchases over £2,000 then although you are allowed to claim back the VAT on these you will have to wait until you submit your annual VAT return to claim them back.

3. Who Can Combine the Flat Rate VAT Scheme and Annual Accounting?

You are eligible to join the flat rate VAT scheme if your taxable turnover for the next 12 months is less than £150,000. You can join the annual accounting scheme if your taxable turnover for the next 12 months is less than £1.35m.

That means as long as you are eligible for the Flat Rate VAT scheme, you can use the annual accounting scheme.

4. How to Join the VAT Flat Rate and Annual Accounting Schemes

4.1 Complete a VAT600AA/FRS

If you’ve already registered for VAT, then you need to complete a VAT600AA/FRS which covers your application to both schemes.  You can submit this form online and you will need your business details including your existing VAT number to apply.

Alternatively, you can print and post the VAT600AA/FRS to:

HM Revenue and Customs – National Registration Unit 
Imperial House 
77 Victoria Street 
Grimsby 
DN31 1DB 
United Kingdom 

If you are new to VAT, you can join the flat rate and annual accounting schemes as part of registering for VAT, as you go through the application process you will be offered schemes which you are eligible to join, including the flat rate and annual accounting schemes.

Need to register for VAT? Read this guide to find out how