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Are HMRC being unreasonable here?

Are HMRC being unreasonable here?

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A few months ago we registered a client for VAT using the online service.  The plan was they would start on the standard method of VAT and then join the Flat Rate Scheme after the first return.  Unfortunately, we put the request to join the scheme on the online form and clicked submit.  Realising the mistake immediately we called HMRC, told them what had happened and they agreed to sort.  A week later we got a letter confirming withdrawal from the Flat Rate Scheme and that the client couldn't join again for a year.  "Hang on!" we said. "They've never been in the Flat Rate Scheme.  We told you it was a mistake on the form - and you never told us this was how you would sort it out."

We then got a letter saying that if the client wished to apply again they would consider it.  Of course, the client has applied and HMRC are now saying "no" not for 12 months.

There are a number of problems.  Firstly, it has proven impossible to actually speak to anyone other than a helpline person.  Secondly, HMRC are taking an age to respond to letters.  All the delays are working against our client.

We are in the process of asking for a decision review on the basis that:

1. we informed HMRC immediately of the mistake on the online form.

2. had we been told on that phone call that they were not amending our application but treating it as a request to withdraw from the flat rate scheme we would have requested to stay in the scheme.

3. the client has never been on the flat rate scheme.  No FRS returns have ever been prepared.

So, am I alone in thinking HMRC are being unreasonable here? Or is it a vote for abandoning online submissions in favour of something you can fish out of the post tray?

Replies (15)

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By NO Tax
22nd Mar 2016 01:04

FRS
Would cancelling that VAT reg and applying for a NEW VAT Reg solve the delay in waiting for the correct reply from HMRC?

Worth a go I'd think

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By jford
22nd Mar 2016 07:39

Cancelling scheme
Thanks FRS for the suggestion. The business is registered as a result of the original application - and it needs to be due to exceeding the threshold. We've no grounds for cancelling the registration so I don't think this is an option.

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By JimFerd
22nd Mar 2016 09:25

I'd be tempted to write a letter of complaint to HMRC stating that they haven't sorted the problem in the way they originally said they would, and as such your client will use the FRS scheme with immediate effect under the assumption that the complaint is dealt with in due course.

 

 

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RLI
By lionofludesch
22nd Mar 2016 09:40

Alternative Dispute Resolution

Try ADR.

Yes, you made a mistake, but you've not actually submitted an FRS return. This is a weird interpretation.

How much is involved ?

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By jford
22nd Mar 2016 11:40

Update

Thanks everyone for you comments. I'm hoping that HMRC will see sense.  Another email sent today.  I think we've been a victim of 'computer says no'.  What HMRC have done is put the client on the FRS on 1 Sept and taken them off on 2 September rather than do what we asked - which was to not put them on at all.

The client clearly has not operated the FRS although a true pedant may argue that the should have done - for one day.

At stake is approx £2,000 per quarter.  The way HMRC have done things they will suffer for 3 quarters - so £6,000 in total.

I'm reluctant to prepare a return on the FRS when HMRC have been clear that the client cannot operate the scheme (no matter how wrong I think they are).  I think it may compound the problem should HMRC not eventually back down.

 

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By JimFerd
22nd Mar 2016 12:00

As long as you're up-front with them about using the FRS in the interim, I'd be hopeful that this situation (as well as the legislation linked by Basil) would qualify as a reasonable excuse in the event of any penalties for incorrectly using the scheme, should this not go your way.

The flip side however, is that your client will certainly not be able to recover any retrospective VAT should HMRC end up agreeing with you (as it's just meant to be an admin saving scheme). You could end up kicking yourself, or the client kicking you.

That being said, it's easy for me to say as I'm not the one taking the risk! If your client wont be upset at you about being on the normal scheme for another quarter or two until it's resolved - that's probably the less stressful option.

 

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By mumpin
22nd Mar 2016 12:51

@ OP...

...I'm just really interested to know why you would want the client to be on Standard Vat for the first return and then switch to FRS for second vat period onwards.

Am I missing a trick here? Are you doing something fiendishly clever?

Thanks.

 

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By free-rider
22nd Mar 2016 13:01

Did I get it right?

mumpin wrote:
Am I missing a trick here? Are you doing something fiendishly clever?

Thanks.

 

I`ll have a guess here. The company might be expecting a high expenditure in the first quarter for which it would like to reclaim the VAT in accordance with standard scheme. This expenditure would probably be non-reclaimable under the FRS rules.

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By mumpin
22nd Mar 2016 13:12

@ free-rider

OK I guess that could arise. Thanks for pointing it out.

Its just that, with £2k+ Capex being claimable under FRS and also pre-reg input vat this scenario had never occured to me.

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By jford
22nd Mar 2016 13:46

Not so fiendish

mumpin wrote:

OK I guess that could arise. Thanks for pointing it out.

Its just that, with £2k+ Capex being claimable under FRS and also pre-reg input vat this scenario had never occured to me.

That's pretty much it. It worked out better in this case for the client to hold off joining the FRS for the first quarter.  Very low turnover expected and an opportunity to recover VAT on some things that wouldn't qualify on the capex side of things.

Me and my great ideas.  It's caused nothing but trouble!

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Stepurhan
By stepurhan
22nd Mar 2016 14:13

Capex limitation

The Capex reclaim under FRS is restricted to physical items. If you have something like a franchise purchase in the first quarter, then you could have a lot of input VAT but FRS does not allow you to reclaim it.

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By gcg007
23rd Mar 2016 12:32

VAT registratioon error

I have a client who incorporated in 2004 and registered online for VAT in 2011 but in error entered the VAT registration date as 2004! After 4 months of correspondence HMRC agreed to the 2011 date.

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By birdman
23rd Mar 2016 12:33

Devil's advocate

If you look at it from HMRC's side, you've asked them to assist in correcting your error, which they've done, even though they didn't have to. This correction had an unforeseen consequence, which you've asked them to reverse. Bearing in mind the rationale behind Flat Rate VAT (simplicity, not profit to the taxpayer) and the fact that you do want to be in FR from Q2 but not in Q1, I'd not be so sure that the FTT would go along with your request. The fact that your client is potentially out of pocket is between you and your client to resolve, HMRC wouldn't be interested (except maybe to query your choice of flat rate %, given the expected benefit!).

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By chatman
23rd Mar 2016 12:57

HMRC did not resolve the error

birdman wrote:
you've asked them to assist in correcting your error, which they've done

No they didn't; they simply added their own error.

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By birdman
23rd Mar 2016 13:05

Semantics

From their side, client was incorrectly down as flat-rate, now they aren't, so error corrected.

I'm not saying they are right, and I'd argue with them 'til the cows came home if it was my client, but I don't think taking it further is guaranteed to be a success.

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