Flat Rate VAT Scheme and Annual Accounting. If your turnover meets the criteria for the Flat Rate VAT scheme and annual accounting you can apply to join both schemes. This can be advantageous both for your cash flow and reporting.
HMRC offers a number of VAT schemes for small businesses aimed to help simplify reporting and aid cashflow management.
That way, depending on your business, you can put yourself in an advantageous position.
Can I Join 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 annual accounting.
Advantages of Joining Both the VAT Flat Rate and Annual Accounting Schemes
Joining both the VAT Flat Rate and Annual Accounting Scheme can be a smart move:
- You’ll only need to file one VAT return a year;
- Better cash flow management, not just from paying a lower rate of VAT over to HMRC but also from a set fixed monthly payment towards your VAT bill
Disadvantages of Joining Both the VAT Flat Rate and Annual Accounting Schemes
- Your monthly payments are based on reasonable estimates, but if there are any changes to your income you could find yourself making monthly VAT payments that are higher than required. Although you can apply to HMRC to change your 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 this back.
How to Join the VAT Flat Rate and Annual Accounting Schemes
You will need to submit application forms as required by HMRC to join the VAT Flat Rate and Annual Accounting Schemes
If you are already VAT registered
HMRC have a single form called the 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
77 Victoria Street
If you not currently VAT registered
If you are new to VAT, you can join the flat rate and annual accounting schemes as part of your VAT application. The easiest way to register is online here and it involves setting up a Business Online account with HMRC. 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.