Payment on account for VAT is making multiple payments in advance to HM Revenue and Customs to set off against your future VAT liability. The benefit of the payment on account is so that you do not have to pay out a large sum of money for your VAT liability when you submit your VAT return.
VAT liability of more than £2.3 million
HMRC requires every business with an annual VAT liability of more than £2.3 million to make payments on account (POA). In other words, on average, if your business is steadily generating a quarterly VAT liability of around £575,000, you must make payments on accounts for your VAT.
Interim VAT payments on account
Correspondingly, you will make interim payments at the end of the second and third month of each VAT quarter. In the fourth month, you will submit your VAT return and calculate the balance of VAT liability still owe to HMRC. You deduct the payments on accounts already made from the total VAT liability for the quarter. VAT liability is the Box 5 figure in your VAT return.
You may ask why making the interim payments on the second and third month of each VAT quarter? This is because you have one month to submit your VAT return to HMRC every quarter.
Do not adjust your VAT liability figure in Box 5 of your VAT return to take account of the payments on account you already made. You complete your VAT return the normal way. You only make payment of the balance of VAT liability still owe to HMRC together with your VAT return.
VAT refund for the quarter
If for example, there is a VAT refundable for the quarter. The refund will be processed under the normal rules. Generally, the payment on accounts for the quarter will be repaid to your business.
VAT Annual Accounting Scheme
Similarly, payments on account are required for businesses joining the VAT Annual Accounting Scheme. Under this scheme, you can choose quarterly or 9 monthly payments on account.
Companies House filings
Additionally, if your VAT registered business is a limited company, you must also deliver your company accounts and confirmation statement to Companies House promptly.
If you require any help with your VAT returns, feel free to contact our accountants, they will be more than happy to assist you.