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What are the different VAT schemes available?

There are various VAT schemes available when deciding upon VAT registration. An accountant or tax adviser would be best suited to providing advice and guidance.

Below is an overview of the most common VAT schemes.

Annual accounting

This scheme requires a company to account for VAT once per year compared to the standard system of every 3 months. This will have the impact of reducing paperwork and saving time, however, the rules for keeping and maintaining records will be the same. The scheme is also restricted to businesses with a turnover of up to £1.35M.

With this scheme a VAT registered business will pay HMRC monthly, based upon an estimated sales figure for the year and at year-end any difference is payable to HMRC. 

Standard accounting  

Under this scheme a VAT registered business would be required to prepare and submit 4 VAT returns (1 x return every 3 months). The advantage of this, compared to the annual scheme, is that a business will know exactly how much VAT it has to pay.

The downfall of this scheme is that it is based on invoices, therefore, this can cause cashflow problems for any business small or large. This then leads us on to the Cash Accounting Scheme.

Cash Accounting 

The standard scheme has a cashflow draw back. This is overcome by Cash Accounting, as VAT is accounted for when payments are received or made in respect of goods and services. 

The only drawback is VAT cannot be reclaimed unless it has been paid, though this is mitigated by the fact that sales invoices are treated in the same way.

Another drawback is that if a business decided to leave the scheme, then it would have to account for VAT on everything. This would therefore include any unpaid invoices – both sales and purchases.

How To Register For VAT

You can use HMRC online systems to register or use form VAT1. However please ensure the information is correct and you have selected the most appropriate scheme for your business as joining the wrong scheme could be costly. If in doubt then best to contact an accountant or a tax adviser.

HMRC will require you to provide details about the business and this will include your turnover, business classification and business bank details.

Once registered, HMRC may ask more questions or issue a VAT Certificate once your application has been processed.

Summary

Not sure which VAT scheme is right for your business? Our experienced accountants in Manchester can help you choose the most tax-efficient option, stay compliant with HMRC, and simplify your VAT obligations. Call Accounting Solutions Manchester today on 0161 879 7175 for a free, no-obligation consultation.