VAT Accounting Schemes

In contrast to standard VAT accounting, there are several alternative ways you can account for VAT that could save you time and money.

Some of these VAT accounting schemes have been designed for specific trade sectors. Others have been designed to deal with more general business issues. Some of the schemes can be used together.

Annual Accounting Scheme

Businesses with expected annual taxable supplies not exceeding £1,350,000 may apply to join this. Under this scheme you will make payments of VAT on account throughout the year in nine monthly or three quarterly installments but will only have to complete one VAT return at the end of the year.

These installment are based on the VAT you paid in the previous year, if you have been trading for less than a year, the installments are based on an estimate of you VAT liability.

If upon completion of your annual VAT return you have not paid enough VAT on account you make a balancing payment to HMRC. If you have overpaid, you claim a refund from HMRC.

It can help reduce your paperwork because you only need to complete one annual return instead of four quarterly returns. It can also make it easier to manage your cash flow. However, it does not remove the requirement to keep all required VAT records and accounts.

However it is not suitable for businesses that regularly reclaim VAT as you would only get one repayment at the end of the year and if your turnover decreases, your interim payments may be higher than under the standard VAT accounting.

For more information:

Cash accounting scheme

You can account for VAT on this scheme if your annual turnover does not exceed £1,350,000.

Usually VAT is payable when an invoice is issued, but on this scheme, you do not need to pay VAT until your customer has paid you. But you also cannot reclaim VAT on your purchases until you have paid for them.

Cash accounting can be beneficial for your cash flow especially if your customers are slow to pay. It is even more useful if you have bad debts.

This scheme may not be for you if you regularly reclaim more VAT than you pay, or if you buy a lot of goods and services on credit.

For more information:

Flat Rate Scheme

This scheme is designed to help small businesses reduce the amount of time they spend accounting for VAT.

This is a scheme allowing businesses with taxable turnover not exceeding £150,000 and total turnover not exceeding £187,500 to pay VAT as a percentage of their total turnover.

Using this scheme means you do not have to calculate the VAT on each and every transaction. Instead, you simply pay a flat rate percentage of your turnover as VAT. This gives you the following benefits:

  • easier record-keeping – no need to separate out the gross, VAT and net in your accounts
  • more time for you – less work doing the books so you can get on with running your business
  • fewer rules to follow – no more problems about what VAT you can and cannot reclaim on your purchases
  • peace of mind – less chance of mistakes, so fewer worries
  • certainty – you always know how much of your takings you will need to pay to us

The percentage is less than the standard VAT rate because it takes into account the fact that you are not reclaiming VAT on your purchases. There is a range of flat rate percentages – the one you use depends on your trade sector – see what your percentage might be – and click on Flat Rate Scheme percentage rates from 4 January 2011

Although the Flat Rate Scheme can reduce your paperwork, one downside is that you cannot reclaim VAT on your purchases. If you buy a lot of goods and services from VAT-registered business, you could end up paying more VAT. Also, if you make a lot of zero-rated or exempt sales, you could end up paying more VAT because you will still pay the flat rate percentage on your turnover for those sales, even though you are not charging VAT on those sales.

For more information:

Retail schemes

There are special schemes for retailers as it is impractical for most retailers to maintain all the records required of a registered trader.

If you sell to the general public, especially high quantities of relatively inexpensive items, it can be difficult, time-consuming and costly to record the VAT on every sale in your accounts.

There are several VAT accounting schemes that retailers can use instead of accounting for VAT in the standard way. These can help simplify your retail VAT accounting.

There are a number of different standard retail schemes, or depending on your business, you may be able to agree a bespoke VAT retail scheme with HMRC. If your turnover is over certain limits, you can only use a bespoke scheme. The standard retail schemes are:

  • apportionment schemes
  • direct calculation schemes
  • the point of sale scheme

These schemes are suitable for most retail businesses.

There are special arrangements and rules for:

  • caterers and catering
  • chemists (retail pharmacists)
  • florists

For more information:

How We Can Help?

We can help ensure that you comply with all the VAT regulations and assist you in a number of ways including the following:

  • Tailoring your accounting systems to bring together the VAT information accurately and quickly for you;
  • Ensuring that your business is VAT efficient and that adequate finance is available to meet your VAT liability on time;
  • Providing assistance with the completion of VAT returns;
  • Negotiating with HMRC if disagreements arise and in reaching settlements;
  • Advising as to whether any of the available schemes may be appropriate for you.

Some of this information has been obtained from:, where more information can be found.

This is produced for information only and it is advisable to seek professional advice appropriate to your circumstances before taking any further action.