Received a belated penalty notice issued to my client requesting information regarding the calculation of flat rate vat up to the date of notification on which they are to levy a 10% penalty.
It has always been my understanding that the 1% discount would still be allowed but according to the HMRC letter: "Please be advised that the discounted percentage on the Flat Rate Sceme cannot be used for a default penalty period"
Its also a bit disconcerting that they do not ask for information about VAT suffered on assets on hand at the date of registration etc - but I will advise nevertheless. Will also atempt to get the penalty reduced.
The VAT return had already been submitted so if they are correct I guess I will have to amend the next return to account for the 1% - its a bit of a minefield!
Before I respond to this letter I would be grateful of any thoughts regarding the 1% denial as it is completly new to me and I suggest others on this forum.
Thanks
Replies (5)
Please login or register to join the discussion.
Late registration?
I am not aware of any restriction during a "a default penalty period" or even what that is, but the 1% discount is only available for a maximum of one year from the date on which the trader should have registered for VAT and can only be claimed for that part of the year following the date that HMRC confirms that the trader may start using the FRS.
Does this apply in your case?
Euan is right
The period in your case is from the date HMRC became aware of your liability to register (or your start date if later) until the first anniversary of the date from which your VAT registration should have commenced.
Flat rate VAT registation penalty
The pre-trading input tax cannot be deducted from the VAT liability for the purposes of the late registration penalty but can be claimed in the first VAT return.
The 1% discount applies for the first 12 months of registration, which is not the same as the first 12 months of being on the flat rate scheme if the date of joining the scheme was after the business' registration date. The output tax due to HMRC on the VAT return is shown net of the discount. It may be that the discount finishes part way through a return period and so the VAT return may use several different flat rates if the main rate also changes in the period as a result of the standard VAT rate changing.
The 1% discount cannot be taken off the flat rate percentage when reporting the figures for the late registration penalty.
HMRC will reduce the penalty if you provide them with the information they request promptly ie outputs for the period, flat rate percentage and tax due. Recent letters from HMRC in these situations are also requesting background on the reason for late registration eg when did the trader realise that they needed to register, why did they not register on time, any other information which may be relevant.