Annual accounting - improve cash flow!
Deferral. You might think that the holiday payment period from 20 March to 30 June 2020 only applies to VAT owed on a return. But this is not the case. HMRC has confirmed that it will also apply to payments on account made by both large paying businesses and users of the annual accounting scheme that fall into the deferral window.
Tip. Your business can join the annual accounting scheme if it expects its taxable sales will be less than £1.35 million excluding VAT in the next twelve months. It then submits only one VAT return each year.
Trap. Be clear that this is a payment deferment opportunity and not a cancellation of your VAT liabilities.
Payments on account. Many businesses will suffer reduced profits and sales because of the coronavirus crisis. This is where you can make another important cash flow saving if you use the annual accounting scheme. Scheme users make quarterly or monthly payments throughout the current year based on the previous year’s VAT liability. But you can ask HMRC to reduce them if you think they are too high by contacting the Annual Accounting Registration Unit (see The next step ). Ensure you include calculations to show how you’ve worked out the reduction.
Example. John trades as an architect and uses the annual accounting scheme. He paid £50,000 VAT on his annual return to 28 February 2020 but estimates this will be only £15,000 on the 2021 return due to the reduced trading caused by the coronavirus crisis. John’s payments on account will be £5,000 from June 2020 to February 2021 but he can write to HMRC and ask for them to be reduced to £1,500 each. John can also defer his June payment until March 2021 as it falls within the VAT payment holiday.
For contact details for the Unit, visit http://tipsandadvice-vat.co.uk/download (VAÂ 10.07.01).
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