Plenty of businesses in Brighton and Hove are seasonal, ebbing and flowing with the tide of summer visitors, the conference season and our annual influx of foreign students. But can this seasonality be reflected in how you pay VAT? And is there a way to reduce admin and improve annual cashflow?
In a word, yes.
Getting your AAS in gear
Everyday, bog standard VAT accounting involves filling in four VAT returns a year and paying quarterly. But did you know there’s an annual alternative, the VAT Annual Accounting Scheme or AAS?
The AAS scheme means you only complete one VAT return a year, a blessing if like many people you find the whole thing incomprehensible. And you can pay the VAT you owe over nine months too. All of which makes things much simpler than the regulation four-times-a-year nightmare.
The AAS was created to help businesses whose projected annual turnover is £1.35m or less cut the administrative burden and manage their cash flow better. There’s a clear cash flow advantage if your business’s turnover is on the up, letting you pay VAT in equal monthly instalments based on the previous year’s turnover.
When you trade seasonally it works out even better because you can pick and choose your own year-end date, setting it as far as possible from your business’s typical high season, which can mean you pay tens of thousands less VAT per quarter than under the regular system. Obviously you pay the same amount of VAT in the long run, but the way you pay it supports your business instead of putting you under so much pressure that you crack. It also means you’re less likely to have to go cap in hand to a bank to borrow money to cover VAT payments at crazy times of year when your cashflow doesn’t flow!
Will it work for your business? AASk a VAT expert
Once you’ve joined the AAS you can stick with it until your VAT-able turnover tips over the £1.6m mark. If you don’t have any existing VAT records you need to estimate your turnover for the next 12 months and pay 10% a month. Or you can opt to pay 25% of your estimate per quarter, meaning your VAT money stays in your account for longer instead of lining HMRC’s coffers.
How do you know whether AAS will work for your business? If you regularly reclaim VAT or predict your turnover is due to decrease, it probably won’t do you any favours. It’s best to consult an expert, which is where I come in. Feel free to contact me and we’ll see what’s what.