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HMRC internal manual

VAT Annual Accounting Scheme

Introduction: Background

Annual accounting is a voluntary simplification scheme, which was introduced on 1 July 1988. The purpose of the scheme is to ease the burden on small businesses.

The scheme allows small businesses to spread their VAT payments more evenly over the year, making it easier to manage their cash flow. Businesses that use the scheme also benefit from a reduction in the costs of complying with their VAT obligations. They have to submit only one return each year, instead of the usual four, and get an extra month to submit the return and any balancing payment.

Businesses with an annual taxable turnover up to £1,350,000 can join the scheme. ‘Taxable turnover’ means the value of all taxable supplies at the standard, reduced and zero rates of VAT.