Sigma Accounting:

Sigma Accounting specialises in providing accountancy and business advisory services to owner managed businesses based on the Isle of Man.

For an informal discussion about how we can help you with the accountancy requirements of your business please contact us.

Home Our services About us Information Testimonials Contact us

Copyright Sigma Accounting ©2013 All rights reserved

SIGMA accounting

Sigma Accounting is registered in the Isle of Man (number 023280B)

and is a member of the ICAEW Practice Assurance Scheme.

∑

What is the Annual Accounting Scheme?

Using standard VAT accounting, you must complete four VAT Returns each year.  Any VAT due to Customs & Excise is payable quarterly, and any VAT refunds due to you are repayable quarterly.

Using the Annual Accounting Scheme, you make either nine interim payments at monthly intervals, or three quarterly interim payments, throughout the year. You only need to complete one return at the end of each year. At that point you must pay any outstanding amount. If you have overpaid, you will receive a refund.

If you have been registered for VAT for less than 12 months, your interim payments are based on an estimate of the VAT you expect to owe for the coming year. If you have been registered for VAT for 12 or more months, your interim payments are based on your previous year's actual VAT payments.

Who can use the Annual Accounting Scheme?

You can use the Annual Accounting Scheme if your estimated VAT taxable turnover for the coming year is not more than £1.35 million. Your VAT taxable turnover includes any standard, reduced and zero-rated sales and other VAT taxable supplies, but excludes the VAT itself, VAT-exempt supplies and capital asset sales.

Once you are using annual accounting you can continue to do so as long as your estimated VAT taxable turnover remains below £1.6 million.

Who cannot use the Annual Accounting Scheme?

You cannot use annual accounting if:

• your estimated VAT taxable turnover is over £1.35 million per year
• you are registered for VAT as a division of a company or part of a group
• you have previously used annual accounting within the past 12 months
• you are not up to date on your VAT payments
• you are insolvent

The pros and cons of the Annual Accounting Scheme

There are a number of reasons why the Annual Accounting Scheme can be beneficial to your business, but there are also some potential disadvantages.

Benefits of annual accounting

• you only need to complete one VAT Return per year, instead of four
• you get two months rather than one month to complete and send in your annual return and pay the balance of your VAT payable
• you can better manage your cash flow by paying a fixed amount in monthly or quarterly instalments
• you can make additional payments as and when you wish
• you can join from the day you register for VAT, or if you are already registered

Disadvantages of annual accounting

• if you regularly reclaim VAT, you will only get one repayment per year
• if your turnover decreases, your interim payments may be higher than your VAT payments would be under the standard VAT accounting - you would have to wait until the end of the year to receive your refund

Joining and leaving the Annual Accounting Scheme

Joining the Annual Accounting Scheme

To join the Annual Accounting Scheme, you must fill out an application form. You can join the Annual Accounting Scheme and the Flat Rate Scheme at the same time using one form.

Once you have joined the Annual Accounting Scheme you must notify Customs & Excise if there are significant changes that may affect the amount of VAT you pay. Examples include:

• if your turnover is, or is likely to be, much higher or lower than the previous year
• if your VAT taxable turnover is or is expected to be more than £1.6 million, for instance if you buy another business
• if your VAT payable will, or has, increased by at least 10 per cent since the last time your instalments were calculated

How to leave the Annual Accounting Scheme

You may leave the scheme voluntarily at any time by notifying Customs & Excise.

You must leave the scheme if your VAT taxable turnover goes over £1.6 million. Customs & Excise may remove you from the Annual Accounting Scheme for a number of reasons, including:

• if you calculate your VAT incorrectly
• if you are convicted of a VAT offence
• if you are assessed for a penalty for VAT evasion

If you leave the Annual Accounting Scheme, you can't rejoin for at least 12 months.

When and how to pay annual accounting VAT

If you choose to pay your VAT by nine monthly instalments, each payment will be 10 per cent of the total amount of VAT you paid to Customs & Excise in the previous year, or 10 per cent of the estimated total annual amount of VAT due to Customs & Excise if you have been registered for VAT for less than 12 months. Your payments will be due by the end of months 4 to 12 of your annual accounting year.

If you choose to pay your VAT by three quarterly instalments, each payment will be 25 per cent of your previous year's VAT liability, or 25 per cent of your estimated VAT liability if you have been registered for VAT for less than 12 months. Your payments will be due by the end of months 4, 7 and 10 of your annual accounting year.

The balance of your actual VAT payable for your annual accounting year, based upon the return that you complete at the end of the year, is due two months after the end of your annual accounting year.

All of your payments must be made electronically.

How to fill in an annual return

Annual returns are completed in exactly the same way as quarterly returns, except that after calculating the annual VAT payment due, you deduct the interim payments you have already made to arrive at the end-of-year balancing payment due to you or Customs & Excise.

Using the Annual Accounting Scheme with other schemes

You may be able to use the Annual Accounting Scheme together with some of the following VAT schemes:

Cash Accounting Scheme

Unlike standard VAT accounting where VAT is due when you issue an invoice, using cash accounting you don't have to pay VAT until your customers pay you.

Flat Rate Scheme

Using the Flat Rate Scheme you simply pay a fixed percentage of your turnover as VAT.

Retail schemes

If you are a retailer, there are several schemes where you can simplify your calculation of VAT by not having to account for VAT on each individual sale.

Margin schemes for second-hand goods, art, antiques, collectibles

If you buy or sell second-hand goods, antiques, collectibles or art, you only need to account for VAT on the difference between the price you paid for an item and the price at which you sell it - your margin.

Tour Operator's Margin Scheme

The Tour Operator's Margin Scheme makes VAT accounting easier for tour operators who buy and sell travel, accommodation and certain other services internationally.