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The HMRC Payments on Account scheme (POA) is a method by which HMRC collects VAT earlier from very large businesses. This system boosts the government’s cash flow but can affect a business’s finances.
Businesses or VAT groups with an annual VAT liability over £2.3 million must participate in this scheme. They are required to make monthly VAT payments estimated by HMRC instead of just quarterly. After making two monthly payments, the business files the usual quarterly return, applies for these payments, and then settles the remaining balance or claims a refund.
How to Determine If You Are Liable for PoA
HMRC tracks VAT liabilities through your VAT returns. If your business crosses the threshold, HMRC will notify you and start the PoA process. They calculate your monthly payments by dividing your previous year’s VAT liability (excluding VAT on imports and goods ex-warehouse) by 24. These payments might change if your annual liability varies by more than 20%.
Alternatives to Payments on Account
If the quarterly PoA system doesn’t suit your business, you can file monthly VAT returns instead. You can request this change online or by filling out form 484 and mailing it to the provided address. Once you switch to monthly returns, you should stick with this format for at least a year.
Choosing monthly returns could extend your VAT payment and submission deadline by up to seven days, provided you use electronic payment methods. However, if you switch back to quarterly returns, this extension disappears, and you must resume PoA from the start of the next quarter.
Paying Actual Monthly Liability
Instead of the estimated payments, businesses can opt to pay the actual VAT liability for the previous month. This is ideal for businesses with significant seasonal turnover fluctuations. However, if you choose this method, you must commit to it for at least a year.
If you find yourself in credit in any month under this system:
- The credit is not immediately repaid but carried forward to the next VAT return.
- You cannot offset this credit against the next month’s liability to reduce the payment amount.
- It might be beneficial to switch to monthly returns if you frequently have credit and prefer quicker repayments.
Dealing with Discrepancies in PoA
If you believe the PoA calculated by HMRC is too high, you can request a review to reduce these payments. Keep in mind that accurate reporting of monthly liabilities is crucial. If HMRC finds discrepancies or is not satisfied with the payments, they may require you to revert to monthly returns or the previously calculated PoA.
Contacting HMRC
For businesses looking to manage their actual monthly liabilities or seeking clarification on Payments on Account (PoA), it is advisable to contact HMRC’s Payments on Accounts team. They can provide guidance and assist in resolving any issues related to your VAT payments.
The PoA scheme is designed to ensure timely tax collection from large businesses. However, it is crucial to understand your options and obligations to manage your cash flow effectively. Whether you choose the standard PoA, actual monthly liabilities, or switch to monthly returns, being informed about and compliant with HMRC’s requirements will help you maintain financial stability.