Glossary · UK
What is Annual Accounting VAT Scheme?
A HMRC scheme letting eligible businesses file one VAT return per year and make advance payments on account, reducing administrative burden.
Full Definition
The VAT Annual Accounting Scheme is a HMRC scheme that allows eligible VAT-registered businesses to file just one VAT return per year instead of the standard four quarterly returns, and to make advance payments on account during the year based on the previous year's liability. The scheme significantly simplifies VAT administration by reducing filing deadlines and cashflow surprises. Eligibility requires estimated VATable turnover of GBP 1.35 million or less at the time of application. Businesses must leave the scheme when their VATable turnover exceeds GBP 1.6 million. There are two payment structures: under the 9-payment option, businesses make nine monthly instalments each equal to 10% of the previous year's net VAT liability, due at the end of months 4 through 12 of the VAT year; under the 3-payment option, three quarterly instalments each equal 25% of the previous year's net VAT liability. In both cases, a balancing payment or refund is settled when the annual return is submitted, within 2 months of the VAT year end. The scheme is not suitable for businesses that regularly receive VAT repayments -- such as zero-rated traders or exporters -- because they would have to wait until year end to recover the repayment, creating a cashflow disadvantage. Businesses in their first year of VAT registration estimate their advance payments based on expected liability rather than a prior year figure. The Annual Accounting Scheme can be combined with the Flat Rate Scheme but not with the Cash Accounting Scheme. Businesses can leave the scheme voluntarily at any VAT period end by notifying HMRC. The scheme is well suited to businesses with stable, predictable VAT liabilities who value simplified administration over flexibility in payment timing.