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Introduction

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There are a number of VAT Accounting Schemes that businesses can use to account for VAT to HMRC rather than using the normal method of reporting and filing.  These are designed to either assist business cash-flow or smooth out VAT payments over the year with each providing benefits in their own right.  There are specific eligibility and operational rules underpinning each scheme and businesses should also assess whether a particular scheme is beneficial to use in their business. 

 

Summaries of the main schemes are listed below with links at the end to the specific HMRC notices which provide in depth detail about each scheme.  

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Cash Accounting Scheme

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The scheme allows you to account for VAT on the basis of payments received and made, rather than tax invoices issued and received. It’s particularly beneficial if you give your customers lengthy periods of credit or if you have a high level of bad debts. You can use this scheme if the annual value of your taxable supplies (excluding VAT) is not more than £1,350,000.

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For more information see Cash accounting (VAT Notice 731).

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Annual Accounting Scheme

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The scheme is open to businesses who expect to have taxable supplies of up to £1,350,000. It allows you to submit one VAT Return a year instead of the usual 4. You’ll need to make interim payments by electronic means based on your actual or estimated annual VAT liability.

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For more information see Annual accounting (VAT Notice 732).

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Flat Rate Scheme

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The scheme is designed to simplify your records of sales and purchases. It allows you to apply a fixed flat-rate percentage to your gross turnover to arrive at the VAT due. It’s available to businesses with a VAT-exclusive annual taxable turnover of up to £150,000 but you need to apply and be approved by HMRC before you use it.

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It will not benefit every business so, before you apply, you should see VAT Notice 733: Flat Rate Scheme for small businesses for more information.

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VAT Margin Scheme

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VAT margin schemes tax the difference between what you paid for an item and what you sold it for, rather than VAT being payable on the full selling price. You pay VAT at 16.67% (one-sixth) on the difference.

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You can choose to use a margin scheme when you sell:

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• Second-hand goods

• Works of art

• Antiques

• Collectors Items

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See More information here VAT margin schemes

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VAT Margin Scheme for Second Hand Vehicles

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There are different rules if you buy or sell second-hand vehicles under a margin scheme,  You can use a margin scheme to account for VAT on the difference between the price you pay for a second-hand vehicle and the price you sell it for, instead of the full selling price of each vehicle.

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See More information here Using the VAT margin scheme for second-hand vehicles

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Global Accounting VAT Margin Scheme

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The Global Accounting Scheme is a simplified version of the VAT Margin Scheme above.  You can use this scheme to account for VAT on the margin between your total eligible purchases and total eligible sales, and not the margin on the sale of individual items.  This scheme is ideal for businesses that bulk buy and sell small value items.  

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See More information here Using the global accounting VAT margin scheme

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Other VAT Margin Schemes

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There are other VAT Margin Schemes for different goods and scenarios and the HMRC guidance is listed below.

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Using a VAT margin scheme if you’re an agent

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Using the auctioneers' VAT margin scheme

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Tour Operators Margin Scheme (VAT Notice 709/5)

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Selling houseboats and caravans if you use a VAT margin scheme

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-Contains public sector information licensed under the Open Government Licence v3.0.

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