The VAT Annual Accounting Scheme: One Return a Year 2026/27
The VAT Annual Accounting Scheme replaces four quarterly returns with one annual return plus interim payments, smoothing budgeting for small businesses. Learn the GBP 1.35m turnover limit and how it works in 2026/27.
One return instead of four
Most VAT-registered businesses file four returns a year. The Annual Accounting Scheme cuts that to one. You make interim payments toward your bill during the year, then submit a single annual VAT return that reconciles everything with a balancing payment or refund. For a small business that struggles with quarterly deadlines, it can be a welcome simplification.
The VAT itself is unchanged. The rates remain 20% standard, 5% reduced and 0% zero, and the registration threshold is still GBP 90,000 of taxable turnover for 2026/27.
Who can join
- Your estimated taxable turnover for the next 12 months must be GBP 1.35 million or less.
- You must leave once turnover exceeds GBP 1.6 million.
- You cannot use it if you are not up to date with VAT returns or payments, or in certain insolvency situations.
How the payments work
Instead of paying after each quarter, you pay in instalments based on an estimate of your annual liability:
- Either nine monthly instalments, each 10% of the estimated annual VAT, or
- Three quarterly instalments, each 25% of the estimated annual VAT.
- A final balancing payment, or refund, is due two months after the end of your annual accounting period when you file the return.
A worked example
Your business expects an annual VAT bill of around GBP 12,000.
- On monthly instalments you pay 10% each month from month four, so GBP 1,200 a month for nine months, totalling GBP 10,800.
- When you file the annual return, your actual VAT due turns out to be GBP 12,600.
- The balancing payment is GBP 12,600 - GBP 10,800 = GBP 1,800, due with the return.
If your actual liability had been lower than the instalments paid, you would receive a refund instead.
Pros and cons
The scheme suits steady businesses that value predictable cash flow and less admin. It is less ideal for fast-growing or seasonal businesses.
- Pro: only one return a year, easing deadlines.
- Pro: smooth, predictable interim payments help budgeting.
- Pro: can be combined with the Flat Rate Scheme.
- Con: you may pay slightly ahead of the cash if turnover dips.
- Con: regular VAT repayment businesses get refunds only once a year.
- Con: you must review estimates so instalments stay realistic.
The bottom line
For 2026/27, the VAT Annual Accounting Scheme is open to businesses with taxable turnover up to GBP 1.35 million and replaces quarterly returns with one annual return plus interim payments. On a GBP 12,000 bill you might pay GBP 1,200 a month, then settle the balance at year end.
Model your VAT with the calchub.uk VAT calculator, and confirm the turnover limits and payment timetable on gov.uk before applying to join.
Frequently asked questions
Related reading
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