The VAT annual accounting scheme is open to most businesses with a turnover of up to £1.35m per year. Businesses that use the scheme are only required to file one VAT return at the end of each year. This can significantly reduce the amount of administration time and the associated cost of preparing and submitting quarterly VAT returns. The scheme has the benefit of allowing a business to make regular interim payments throughout the year which can help businesses manage their cashflow. The interim VAT payments are based on their estimated total liability for the year.This can be done either monthly or quarterly. These payments are followed by one balancing payment which is submitted with the annual VAT return. The regular monthly (or quarterly) payments are based on the previous year’s liability and may be higher than necessary where turnover has fallen. Conversely, if turnover has increased there may be a significant under payment of liability for the year.The monthly payments are based on 10% of the estimated VAT bill and due at the end of months 4, 5, 6, 7, 8, 9, 10, 11 and 12. Quarterly payments are based on 25% of the estimated VAT amount and due at the end of months 4, 7 and 10.The final balancing payment for the annual return is due within 2 months after the end of the 12-month VAT accounting period. If the VAT due has been overpaid based on the estimated amount, then HMRC will refund the difference. The payments must be paid by direct debit or other electronic means.