A VAT-registered business can normally join the Annual Accounting Scheme if expected VAT-taxable turnover for the next 12 months is £1.35 million or less and its VAT affairs are sufficiently up to date. HMRC must approve the application and confirms the annual period and instalment schedule.
Turnover test
Estimate VAT-taxable turnover excluding VAT for the next 12 months. Include standard-, reduced- and zero-rated supplies. Exempt and outside-the-scope income is generally excluded, but mixed businesses should document the forecast.
The test is forward-looking. A previous year below £1.35 million does not establish eligibility if signed contracts or growth mean the next 12 months will exceed it.
Who cannot normally join?
- a business that is not VAT registered;
- a business in a VAT group;
- an insolvent business;
- a business that left the scheme within the last 12 months;
- a business materially behind with VAT returns or payments;
- a business whose forecast taxable turnover exceeds £1.35 million.
HMRC can refuse an application where compliance history or circumstances indicate a revenue risk.
Newly VAT-registered businesses
A new registrant can apply without a previous 12-month liability. HMRC estimates instalments from the VAT registration application and forecasts. Monitor actual liability closely, because an inaccurate estimate can create a large balancing payment.
How to calculate expected turnover
- Start with signed orders, recurring contracts and current run rate.
- Include zero-rated taxable sales.
- Separate exempt and outside-scope income.
- Adjust for acquisitions, disposals and seasonal changes.
- Consider connected or transferred businesses where rules require.
- Retain the forecast supplied to HMRC.
Can repayment businesses join?
Eligibility is possible, but the scheme is often unattractive for a business regularly receiving VAT repayments because it normally waits until the annual return to claim the net refund. Exporters and high-capital-expenditure businesses should model cash flow carefully.
Compatibility with Cash Accounting
An eligible business can often combine Annual Accounting with the VAT Cash Accounting Scheme. Cash Accounting determines when VAT is recognised; Annual Accounting determines return frequency and instalments. Both sets of thresholds and exclusions must be met.
Compatibility with Flat Rate Scheme
Annual Accounting can also be used with the Flat Rate Scheme where eligible. Flat Rate Scheme entry uses a different £150,000 threshold and turnover definition. Do not substitute the Annual Accounting £1.35 million limit.
How to apply
Apply online through the VAT account or using form VAT600AA. Provide:
- VAT registration details;
- estimated taxable turnover;
- preferred annual accounting year where available;
- bank and payment information;
- authorised agent details where relevant.
Continue ordinary VAT returns and payments until HMRC confirms entry.
HMRC approval
The approval notice states the scheme start, annual period, instalment amount, frequency and due dates. Check it against the forecast and contact HMRC promptly if the liability is materially wrong.
Ongoing eligibility
Normally leave when annual taxable turnover exceeds £1.6 million or another exclusion applies. A business expecting to exceed the exit threshold temporarily can ask HMRC about the tolerance rules rather than leaving or staying without confirmation.
Pre-application checklist
- all VAT returns filed;
- arrears paid or formally arranged;
- 12-month taxable-turnover forecast below £1.35 million;
- no recent scheme exit;
- not a VAT group or insolvent;
- cash-flow impact modelled;
- MTD-compatible records in place.
Read the main VAT Annual Accounting guide.
Official guidance
This guide is general information. Eligibility depends on the live forecast and HMRC approval.
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