Chapter 11 The annual and cash accounting schemes Flashcards
11.1 Annual accounting
Allows small and medium taxable persons to pay VAT on an annual basis, submitting one VAT return. For a business registered for at least 12 months immediately preceding the start of the accounting period, 10% of the total VAT due for those 12 months is due in equal monthly instalments. If not, HMRC will estimate the amount of VAT the business will be liable to pay. 90% of the VAT due is paid in nine equal instalments on the last day of April-December of the VAT year. The balance of VAT due is submitted within the single VAT return on the last day of the second month following the year end. The interim payments are deducted and the balance submitted to HMRC with the return. The business can make the nine instalments to three if HMRC approve the request, payments are 25% of the VAT liability on the last day of April, July and October, with the balancing payment due on the last day of the 14th month.
11.2 Annual Accounting conditions
If the annual value of taxable supplies is expected to be less than £1,350,000 (VAT exclusive), the trader can join the scheme at any time. The trader must not have ceased to operate the scheme in the past 12 months and the trader cannot be a member of a VAT group registration and not registered under a divisional VAT registration.
The trader must leave the scheme if his turnover exceeds £1.6 million, if he becomes insolvent and HMRC can withdraw authorization from the scheme (for example where the trader makes false statements).
11.3 Leaving the annual accounting scheme
Businesses wishing to leave must write to HMRC. Once they have left, they must submit quarterly or monthly VAT returns. The business is entitled to two months to submit its final VAT return on the scheme and a balancing payment.
11.4 Cash accounting
The trader accounts for VAT in respect of when money is received and paid. They get automatic bad debt relief, as the output tax is never paid to HMRC as it isn’t accounting for since the money wasn’t received. The conditions to join are:
• There must be reasonable grounds to believe that taxable supplies do not exceed £1.35 million in the next 12 months
• All VAT return submissions are up to date and any outstanding VAT has been paid
• No VAT offences have been committed in the past 12 months
• No VAT penalties received for evading VAT in the past 12 months
11.5 Leaving the cash accounting scheme
A trader is required to leave when turnover in 12 months to the end of a return period exceeds £1.6 million. Businesses leaving can bring outstanding VAT into account on a cash basis for six months after they leave the scheme providing the value of the supplies in the past 3 months did not exceed £1.35 million. Businesses can claim any input VAT on purchases where they have not been paid once, they have left the scheme.
