This guide will help you decide which of these schemes may be right for your business, whether you are eligible, how to apply and where you can go to get more information and advice.

Pay your VAT in manageable instalments: the annual accounting scheme

Under the annual accounting scheme you only need to file one VAT return each year. You can choose to make monthly or quarterly interim VAT payments during the year - which are based on an estimate of your total VAT bill for the year - with a balancing payment due when you submit your return.

The main benefits of this scheme are that:

• it is easier to manage your cash flow because you pay a regular, set amount
• you will have two months to submit your return after the year end
• you can choose your VAT return year end to suit your business

This scheme is not suitable for businesses that usually get repayments of VAT as you will have to wait a whole year for your money.

Find out about the annual accounting scheme on the HM Revenue & Customs website.

Who can use the scheme?

• If your annual taxable turnover is not expected to exceed £150,000 - then you can join at any time on or after the date you register for VAT.
• If your annual taxable turnover is between £150,000 and £660,000 - then you can join the scheme as long as you have been VAT-registered for 12 months or more.

Businesses using the scheme may continue to use it until their annual taxable turnover reaches £825,000.

Changes to allow more businesses to benefit from the scheme were announced in the Pre-Budget Report 2005. From April 2006:

• the joining threshold will rise from £660,000 to £1,350,000
• businesses under the new threshold will be allowed to use the scheme from their date of VAT registration
• the leaving threshold will increase to £1,600,000

Taxable turnover means the value of all your taxable supplies at the standard, reduced and zero rates of VAT.

Use our interactive tool to identify which VAT scheme your business is eligible to use.

How to apply for the scheme

To apply for the scheme, download and complete form VAT 600 AA from the HM Revenue & Customs website (PDF) and return it to:

Annual Accounting Registration Unit
Deansgate
62-70 Tettenhall Road
WOLVERHAMPTON
WV1 4TZ

The annual accounting scheme can be used together with the cash accounting, flat rate or retail schemes.

Pay your VAT when your invoices have been paid: the cash accounting scheme

Under the cash accounting scheme you account for VAT on the basis of payments you receive and make, rather than on invoices you issue and receive.

The main benefit of this scheme is that you don't have to pay VAT on invoices you have issued until your customers pay you, although it also means you can't reclaim VAT on purchases until you pay your suppliers.

Find out about the cash accounting scheme at the HM Revenue & Customs website.

Who can use the scheme?

You can use this scheme if your annual taxable turnover is not more than £660,000 and you meet certain conditions.

You can continue using the scheme until your annual taxable turnover reaches £825,000. You may use the cash accounting basis for a further six months to account for any VAT outstanding on supplies made and received while using the scheme. Any VAT still outstanding at the end of the six month period must be accounted for on the VAT return ending then.

Taxable turnover means the value of all your taxable supplies at the standard, reduced and zero rates of VAT.

Use our interactive tool to identify which VAT scheme your business is eligible to use.

How to apply for the scheme

You don't need to apply to use this scheme, and can change to it at the beginning of any tax period. If your business is already registered for VAT when you start, you must make sure you don't account for VAT twice on any supplies made or received previously.

The cash accounting scheme can be used together with the annual accounting scheme. There is also a cash-based version of the flat rate scheme, which can be used as an alternative to cash accounting.

Reduce the time you spend accounting for VAT: the flat rate scheme

The flat rate scheme is designed to help small businesses by letting you calculate your VAT payment as a flat rate percentage of your turnover. The percentages are decided according to the trade sector your business is in. Under the scheme you will not be able to reclaim any of the VAT you pay, as this is taken into consideration as part of the percentage calculation.

The main benefit of this scheme is that it reduces the time you spend accounting for VAT because you don't have to record the VAT charged on each individual purchase and sale.

Businesses in their first year of VAT registration can benefit from a 1 per cent reduction in the flat rate. To calculate this, you may take off 1 per cent from the flat rate for your sector. As an example, if your business was classed in the trade sector, and the flat rate for your sector was 10 per cent, you should apply a flat rate of 9 per cent in the first year of VAT registration for your business. Find out how to operate the 1 per cent flat rate scheme reduction at the HM Revenue & Customs website.

Who can use the scheme?

You can apply to use this scheme if:

• your annual taxable turnover (not including VAT) will be £150,000 or less; and
• your annual total turnover (including VAT) will be £187,500 or less
• find out about the flat rate scheme on the HM Revenue & Customs website

Taxable turnover means the value of all your taxable supplies at the standard, reduced and zero rates of VAT.

Total turnover for this purpose is the value (including VAT) of all your business supplies. This includes any exempt and non-business income. Non-business income is only included for deciding whether you can join the scheme. It will not be used to work out how much VAT you need to pay once using the scheme.

For help in choosing your trade sector and to see if you may save money by using the scheme, use the flat rate scheme VAT ready reckoner on the HM Revenue & Customs website.

Use our interactive tool to identify which VAT schemes your business is eligible to use.

How to apply for the scheme

To apply for the scheme:

• Find and download form VAT 600 FRS on the HM Revenue & Customs website and send it by post to the HM Revenue & Customs Registration Unit for your postcode. Find the address of your nearest Registration Unit on the HM Revenue & Customs website and send it to the Registration Unit for your postcode
• Ring the HM Revenue & Customs National Advice Service Enquiry Line on Tel 0845 010 9000 and they will take your application over the phone.
• Find and download form VAT 600 FRS on the HM Revenue & Customs website and email it to frsapplications@hmce.gov.uk.

You can see the notes on the VAT flat rate scheme on the HM Revenue & Customs website.

The flat rate scheme can be used together with the annual accounting scheme. There are also retail and cash-based versions of the flat rate scheme.

Selling to the public made easier: retail schemes

If you sell direct to the public you may find it difficult to issue a VAT invoice for each sale. There are several retail schemes available to help you with this.

The main benefits of these are that:

• they provide an alternative to standard VAT accounting rules, which might be difficult or costly for you to follow
• you will not have to issue VAT invoices unless someone asks for one

Who can use the schemes?

If you are a retailer you can use these schemes to arrive at the value of your taxable retail sales and determine the proportions that are taxable at the different rates of VAT. Each scheme has a turnover limit.

Find out about retail schemes at the HM Revenue & Customs website.

Use our interactive tool to identify which VAT retail schemes your business is eligible to use.

How to apply for the schemes

You don't need to apply to use a retail scheme, but you should start to use one at the beginning of a tax period.

You will be able to obtain specialist advice from the HM Revenue & Customs National Advice Service Enquiry Line on Tel 0845 010 9000, or your accountant.

Retail schemes can be used together with the annual accounting scheme. There is also a retail version of the flat rate scheme.

Account for VAT on the margin of second hand goods, works of art, antiques and collectors' items

If you sell second-hand goods, works of art, antiques or collectors' items you can account for VAT on the difference between the purchase price and the selling price, rather than the full value of the sale.

The main benefit of the scheme is that when you account for VAT you only do so on the margin ie the difference between the purchase and selling price.

If you buy most of your stock from members of the public or from other dealers who are selling under the margin scheme, you will have no VAT to recover.

Find out about margin schemes for second-hand goods, works of art, antiques and collectors' items at the HM Revenue & Customs website.

Who can use the scheme?

The scheme is optional and may be used by those who deal in second-hand goods, works of art, antiques or collectors' items. You will be able to obtain specialist advice from the HM Revenue & Customs National Advice Service Enquiry Line on Tel 0845 010 9000, or your accountant.

How do I apply to use the scheme?

You do not need to apply to use the margin scheme. You can find more information about the scheme in Notice 718.