Payments on account arrangements

‘Payments on account’ are advance payments towards your VAT bill.

HMRC will tell you to make payments on account if you send VAT returns quarterly and you owe more than £2.3 million in any period of 12 months or less.

The £2.3 million threshold includes VAT on imports and moving goods into and out of excise warehouses.

How we work out your ‘payments on account’

We’llWe will initially work out your payments based on your annual VAT liability in the period that you go over the threshold.

We’llWe will divide your annual VAT liability in that period by 24 to arrive at an instalment amount.

If you’veyou have been in business for less than 12 months, we’llwe will work out the payments as a proportion.

We do not include the VAT on imports and moving goods into and out of excise warehouses.warehouses, unless already accounted for on your VAT return and included in your VAT liability. Read about when you can account for import VAT on your VAT Return.

We maywill review your VAT liability every quarter and will change the amount of your payments if your your total VAT liability goes up by 20% or more.

We may on request also change the amount of your payments if your total VAT liability goes down by 20% or more.

Businesses registered in divisions

If you’veyou have registered your business in the names of its divisions, we’ll look at each division as a separate business for payments on account.

We We’llwill use the VAT liability of each division to decide:

• whether it should make payments on account
• the amount of each payment on account

Businesses registered as part of a VAT group

We’llWe will look at the VAT liability of the whole group to decide:

• whether it should make payments on account
• the amount of each payment on account

A VAT group will have a representative member that’s responsible for making payments on account for the group. If we do not get the payments, all members of the group are jointly and severally responsible for payments on account (this means the group members are responsible together and individually responsible for the group payments).

Payments on account start date and annual cycle

The payments on account cycle starts in the first quarter after you go over the £2.3 million threshold.

Your payments on account will staybe calculated on your annual VAT liability in the sameperiod you go over the threshold, until the start of the next annual cycle.cycle for payments on account, unless your VAT liability increases by 20% or more before then.

The annual cycle begins in April, May or June depending on which VAT return ‘stagger’ you’reyou are on. We base the amount of your payments during the annual cycle on your liability in the periodperiod, known as the ‘reference year’. We will do this annual cycle calculation each year.

Reference years

ThisThe following table sets out the reference year for each return stagger:stagger.

Stagger	Quarter ends	Reference year	Annual cycle begins
1	March, June, September, December	Year ending September	April of following year
2	April, July, October, January	Year ending October	May of following year
3	May, August, November, February	Year ending November	June of following year

So, if you’re on stagger 1, your VAT liability for the reference year ending September 2018 will decide the amount of each payment on account from April 2019 until March 2020.the following year.

In-year calculations during the annual cycle

In addition to the annual cycle calculation we will review your last 12 months VAT liability every quarter. If your total VAT liability increases by 20% or more we will adjust the amount of your payments on account.

Payment due dates

We’llWe will write to you with a payment schedule telling you the following:

• how much to pay and
• all your payment deadlines.deadlines

You can also access your payments on account schedule in your VAT online account.

Make sure cleared funds are in HMRC’s bank account by the deadline, or you may may:

• get a a late payment penalty or
• be charged charged late payment interest.

If the deadline falls on a weekend or bank holiday, your payment must clear HMRC’s bank account on the last working day before it,this, unless you pay byby bank Fastertransfer Payments.(Faster payments).

Due dates for payments on account

The due dates for payments on account are the last working day of the second and third months of every VAT quarterquarter, no matter what your period end date is. The 77-day day extension for paying electronically does not apply to payments on account.

Payments on account that are not paid on time will be subject to late payment interest.

Due dates for quarterly balancing payments

Your balancing payments payments:

• are due with your VAT return
• must andhave mustcleared clearinto ourHMRC’s bank account by the last working day of the month if you’veyou have standard period end dates.
  dates

File your quarterly returns online as normal. ButDo do not adjust any figures on your return to record payments on account that you’veyou have already made. InsteadInstead, pay HMRC the net amount shown on your returnreturn, lessminus any payments on account you’ve already paid in that accounting period.

Balancing payments that are not paid on time time:

• will be subject to late payment interest and you
• may be charged a late payment penalty.
  penalty

We’llWe will make any repayments that we owe youyou. under the normal rules. If your return is a repayment return, we’llwe will repay the payments on account you’veyou paid in the quarter.

Non-standard quarterly balancing payments

If you’ve agreed with us to use non-standard period end dates for your returns, then your payments must clear our bank account by the due date for those returns.

How to pay

You must pay all your payments using one of thesethe following methods:

• approve a payment through your online bank account
• online or telephone banking, CHAPS,CHAPS or Bacs
• by debit or corporate credit card online
• at your bank or building society
• standing order

For more details on payment methods read Pay your VAT bill.

Late payments

If you do not make your payments on account or the balancing payment in full and on time we’ll:we will:

• take immediate action to recover the debt
• charge you late payment interest
• consider charging you late payment penalties on amounts unpaid after the balancing payment due date
• consider transferring you from quarterly to monthly returns

Changes in your VAT liability

We may adjust the amount of your payments on account if your total VAT liability goes up or down by 20% or more. We may also remove you from the arrangement if your total VAT liability falls below the threshold.

Higher payments on account

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Lower payments on account

If your total VAT liability (notfalls includingbelow the VAT on imports and moving goods into and out of excise warehouses) is or will be less than 80% of the liability we used to calculate your current payments, you can ask us to reduce them. This applies to either:

• any completed year ending after the year that we’ve based current payments on (a backward look at your VAT liability)
• any year that’s started but not yet ended (a forward looklook, and you must include an estimate of future returns you’ll submit to make up the whole year)

In both cases, write to the payments on account team.

Tell us the reasons we should reduce your payments. If we’re satisfied, we’ll change your payments to show your reduced VAT liability.

Higher payments on account

We may increase your payments on account if the VAT liability for any year after the year we based our calculations on increases by 20% or more. We’ll tell you in writing about an increase in payments.

If we’ve increased your payments you can apply to have the payments reduced to show your current liability as long as you meet the conditions for a lower payment. We’ll use the year that we worked out your payments to decide if you meet these conditions.

Removal from a payments on account arrangement

If your VAT liability falls below £2.3 million in your reference year we’ll remove you from the arrangement 6 months later.

For example:

Ifexample, if your reference year ends in September, and your liability is below the threshold at that point, your last payment on account will be in March of the following March.year. ButYou you must carry on making payments on account until then.

We’llHowever, you will not be removed from the arrangement if your last 12 months VAT liability ending in subsequent quarters exceeds the £2.3 million threshold again.

We will tell you the effective date of your withdrawal from your payments on account arrangement.

If your total VAT liability within any completed year ending after your reference year fallsis below £1.8 million, you can askwrite to the payments on account team into writingexplain towhy we should remove you from the arrangement.

Contact us

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Alternatives to payments on account

There are 2 alternatives to payments on account. These are:

• monthly returns
• actual monthly liability

Monthly returns

If making payments on account and submitting quarterly VAT returns does not suit your business you can choose to make VAT returns and payments monthly. To make the change to monthly returns you can either:

• apply online to change your registration details
• fill

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If you move back from monthly returns to quarterly returns,returns the 77-day day extension will not apply and you must make payments on account from the first quarterly accounting period.

Actual monthly liability

Instead of paying the amounts we told you to, or moving to monthly returns, you can choose to pay the actual liability for the previous month without submitting a monthly VAT return.

For example, the payment due at the end of February will be the actual liability for January. This option may suit you if you have wide seasonal variations in turnover.turnover Butthroughout ifthe year. If you opt to pay the actual liability, you must do so for at least one year.

If you do opt to pay actual monthly liabilities but you’re in credit for any month, you:

• will not get an immediate repayment but should bring the credit forward to the VAT return as normal
• cannot net off the credit in one month against the liability for the next month to reduce the amount of payment
• should consider switching to monthly returns if you’re often in credit and you want immediate repayments of credit

If you want to use actual monthly liabilityliabilities contact the payments on account team.

Removing the option to pay actual monthly liabilities

You must make accurate payments of your monthly liabilities. If we’re not satisfied that you are,are:

• we we’llwill tell you that you can no longer pay the actual monthly liability, and liability
• we may direct you to make monthly returns or go back to the payments on account we worked out for you.
  you

Disagreements

If you disagree with our decision to remove the option to pay actual monthly liabilities you can either:

• ask the payments on account team for a review in writing
• appeal to an the tax tribunal within 30 days of the letter telling you our decision