Chapter 13 - Accounting for VAT Flashcards
Annual Accounting
Allows small and medium businesses to pay VAT annually, with one VAT return and estimated interim payments in the year with a final balance due at the end.
Return to be submitted 2 months after VAT yer end.
Annual Accounting Process
90% of the amount set or agreed with HMRC is paid by direct debit in nine equal instalments on the last day of months 4-12 of the VAT year.
The balance of VAT due is submitted with the single annual VAT return on the last day of the second month following year-end. No 7 day extension allowed
A business can make 3 payments of 25% in months 4, 7 and 10
Annual Process Availability
Only available to traders with taxable supplies not exceeding £1.35 million per annum, who are not in a VAT group or registered under a divisional VAT registration
Must leave the scheme when turnover exceeds £1.6 million per annum, on insolvency, on death or cessation of trade
Cash Accounting
Smaller businesses can dispense with the tax point and use the cash accounting scheme instead
A trader accounts for VAT in respect of when money is received and paid. It gives automatic bad debt relief as if cash is never received, VAT is never paid to HMRC
Cash Accounting Conditons
- reasonable to believe value of taxable supplies will not exceed £1,350,000 in the next 12 months
- all VAT returns submissions must be up to date and all outstanding VAT paid
- HMRC must not have withdrawn permission to use the scheme in the last 12 months
- HMRC has not denied the business access to the scheme
- no VAT offences in the last 12 months
- no offer to compound proceedings has been accepted int he last 12 months
- no VAT penalties in the last 12 months
If they qualify, they don’t need to notify HMRC that thy’re using the scheme
Leaving the Scheme
If turnover in 12 months to the end of a return period exceeds £1.6 million they have to leave. Can also leave voluntarily at the end of a return period
