We weigh up the pros and cons of the VAT Annual Accounting Scheme, where to seek help in the event of a cyber-attack, and discuss the value of internal audits for SMEs
Could the VAT Annual Accounting Scheme be good for your business?
VAT-registered businesses normally submit their VAT returns and payments to HM Revenue and Customs 4 times a year. However, HM Revenue and Customs also offer an Annual Accounting Scheme for businesses with a taxable turnover of £1.35 million or less.
In this article we will look at what this scheme is and why you might or might not want to consider it for your business.
How does the Annual Accounting Scheme work?
Here is how the scheme typically works:
- Eligibility: Businesses with an estimated taxable turnover of £1.35 million or less can usually join the scheme.
- Annual VAT Return: Instead of filing quarterly VAT returns, you submit only one VAT return annually. The return covers the entire accounting period, usually 12 months.
- Payments: Your business would make either nine monthly or three quarterly interim payments towards its VAT bill throughout the year. These payments are based on an estimate of what the annual VAT bill will be.
- Adjustments: At the end of the accounting period, you deduct the VAT payments already made from the amount of VAT shown to be owing on the VAT return. If there’s a shortfall, you pay the remaining amount. If there’s been an overpayment, you can either offset the amount against the following year’s liability or request a refund.
- Application: You apply through HMRC. Once in the scheme you stay until such time as you voluntarily leave, or your business goes over the turnover threshold.
Why might the scheme be good for you?
You might opt to use the VAT Annual Accounting Scheme for several reasons:
- Reduced administrative work: You only have to submit one VAT return annually, instead of four.
- Improved cashflow management: The predictable schedule of making fixed monthly or quarterly payments, rather than fluctuating payments each quarter, can help with budgeting and financial planning.
- Less chance of a penalty: With just one VAT return to submit in a year there is less chance of missing a filing deadline, which could result in a financial penalty.
- Consistency in VAT reporting: If your business has relatively stable or predictable VAT liabilities, the scheme offers consistency in VAT reporting, simplifies the compliance work, and reduces the need for frequent adjustments.
Why might you not want to use the scheme?
While the scheme offers some benefits, there are also reasons why it may not be a good fit for your business.
- Potential overpayment: Under the scheme, the monthly or quarterly payments are all fixed in advance based on an estimate. If the actual VAT liability is lower than estimated, then you will be overpaying VAT throughout the year and tying up funds that could be used elsewhere.
- Cash flow impact: While the scheme offers a predictable payment schedule, this may cause a strain on cash flow if you have fluctuating or seasonal sales.
- Lack of flexibility: Similarly, if you have a significant increase or decrease in sales, then there is limited flexibility in adjusting VAT payments throughout the year. You may therefore find yourself with a heavy final payment or running into cash flow problems.
- Loss of interest on overpayments: If you find you have an overpayment at the end of the year, no interest will be paid on the refund, whereas interest could have been gained by holding the funds elsewhere.
As you can see, whether or not the annual accounting scheme could work for you depends on your business. For some businesses, the scheme can offer significant benefits, whereas others may find that traditional quarterly VAT reporting better suits their requirements.
Please contact us if you would like to take a further look at the VAT annual accounting scheme and we would be happy to help you!
How should you respond to a cyber incident?
The National Cyber Security Centre (NCSC) has recently published a guide for CEOs (and by extension all business owners) on responding to a cyber incident.
A cyber incident can occur in various forms and often result in financial loss, reputational damage, legal consequences, and disruption to your normal business operations. Examples can include ransomware attacks, phishing scams, data breaches, or perhaps an employee misusing, intentionally or otherwise, their access.
The immediate aftermath of a cyberattack can be challenging, and there will be difficult decisions to make as you try to limit the impact on your business, customers and staff over the following weeks and months.
The guide published by NCSC helps businesses to know what to do, both at the start of an incident and throughout it.
A copy of the guidance can be viewed here: https://www.ncsc.gov.uk/guidance/ceos-responding-cyber-incidents
Internal audit – is it just for big business?
In the world of small and medium sized businesses, where every decision can make or break success, the role of internal audit can often be underestimated. However, internal audit does not just have to be a luxury reserved for large corporations. It is a crucial tool that can also help small and medium sized businesses to navigate uncertainties and mitigate risks.
Here are six reasons why internal audit can be worth considering for your business.
1. Risk management
Businesses of all sizes face a myriad of risks, from financial mismanagement to inefficiencies in the way they operate. Internal audit, whether of the finances or of procedures, helps to identify risks early on. This allows you to proactively implement effective controls and procedures to mitigate them.
2. Improve business processes
Internal audit can not only identify problems but also offer valuable insights into your business processes. By conducting systematic reviews, internal auditors can pinpoint bottlenecks, streamline workflows, and enhance the operational efficiency of the business. Optimising the business can reduce costs and boost productivity, helping your business stay competitive.
3. Prevent fraud
The smaller the business, the more devastating fraud can be. Internal audit plays a crucial role in detecting and preventing fraudulent activities by checking on the finances and any internal controls.
4. Strategic decision-making
Internal audits can contribute to providing business owners with reliable information and insights about the business in areas that are not easily seen in the day-to-day business information. This information can help to explain patterns in business data, or provide an insight into something that is currently hidden from business management.
5. Adapting to change
Regularly assessing processes and controls means that the business will be frequently measuring itself against changes that are occurring in the business world. This ongoing evaluation helps to ensure that your business stays agile and responsive to change.
6. Increase in employee responsibility
Depending on the size of your business, it may not be feasible to employ a full-time internal auditor, but it may still be possible to task an employee or group of employees to devote part of their working time to internal audit work. Objectively stepping back from their normal day-to-day work will make them more aware of the need to consider risks and efficiencies in all their work.
In conclusion, internal audit can be an extremely helpful tool for small and medium sized businesses looking to thrive in today’s competitive marketplace. It can help you proactively manage risks, streamline processes, prevent fraud, make informed decisions, drive continuous improvement, and develop your staff. Ultimately internal audit can help you to achieve your business goals.
If you would like to chat about your business and your plans to grow it, please feel free to call us. As experienced business advisors we will be happy to help you.