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Client went into VAT flat rate in error

client in flat rate in error, no response from hmrc.

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New client registered his company for VAT from 1st October 2020 and ticked flat rate in error, as mainly exports.

We wrote to hmrc 22 March to apply to get out of scheme, from the start. No answer yet.

What can we do? What about returns in the interim?

He has submitted nil returns.

 

 

Replies (18)

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By Wanderer
07th Oct 2021 15:24

partner55 wrote:

He has submitted nil returns.

Sounds like he has submitted incorrect returns then.
Probably needs to account for VAT October to March.
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RLI
By lionofludesch
07th Oct 2021 15:27

Apply sharp slap to the back of client's head and throw yourself on HMRC's mercy.

Strictly, your client doesn't have a leg to stand on. He must stay in for a minimum of a year. At least it might stop him taking decisions without proper advice in future.

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Replying to lionofludesch:
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By Wanderer
07th Oct 2021 15:30

lionofludesch wrote:

He must stay in for a minimum of a year.

You sure? I thought you could leave at any time.
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Replying to Wanderer:
Jason Croke
By Jason Croke
07th Oct 2021 15:55

Agree, you can leave at anytime but you have to wait 12 months before you can re-join. Also, once should consider if they are still eligible for FRS each year/anniversary based on turnover threshold for the FRS.

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Replying to Wanderer:
Stepurhan
By stepurhan
07th Oct 2021 16:10

The 12 months is the minimum amount of time he must stay out of the scheme after leaving it. He can leave at any time.

However, unless you can get HMRC to ignore him originally joining it, he is liable for flat rate VAT up until whatever date he formally leaves the scheme.

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Replying to Wanderer:
RLI
By lionofludesch
07th Oct 2021 16:31

Wanderer wrote:

You sure? I thought you could leave at any time.

No.

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Replying to lionofludesch:
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By rmillaree
08th Oct 2021 09:21

Lionflush
I have never seen any anything (that i can remember) that indicates there is a
minimum period you MUST stay on the flat rate scheme - certainly there is no mention in notice 733 section 12.1 of any such conditions.
If you are insiting that there is minimum period of time you must stay on the flat rate can you provide link to that in writing please cheers .

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Replying to rmillaree:
RLI
By lionofludesch
08th Oct 2021 10:21

rmillaree wrote:

If you are insiting that there is minimum period of time you must stay on the flat rate can you provide link to that in writing please cheers .

Insisting ?

Wanderer asked if I was sure.

I said no.

How is that insisting ?

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Replying to lionofludesch:
Stepurhan
By stepurhan
08th Oct 2021 11:04

lionofludesch wrote:

Insisting ?

Wanderer asked if I was sure.

I said no.

How is that insisting ?


I think your no has been interpreted as a response to "I thought you could leave at any time" not "Are you sure?"

When I say "I think" I mean that is how I read it as well. Glad to have the clarification.

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Replying to stepurhan:
RLI
By lionofludesch
08th Oct 2021 11:15

stepurhan wrote:

lionofludesch wrote:

Insisting ?

Wanderer asked if I was sure.

I said no.

How is that insisting ?

I think your no has been interpreted as a response to "I thought you could leave at any time" not "Are you sure?"

When I say "I think" I mean that is how I read it as well. Glad to have the clarification.

I'm sure you're right. But I was only asked one question.

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Replying to lionofludesch:
Stepurhan
By stepurhan
08th Oct 2021 15:03

lionofludesch wrote:

I'm sure you're right. But I was only asked one question.

Surely you've been around these forums long enough to know that answering the question given is the rarity, not the norm. ;-)
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Replying to lionofludesch:
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By rmillaree
08th Oct 2021 13:33

lionflsuh

apologies i misread your comments (should have looked where the question mark was located -) i thought you had said no to the second half of the comment - i can see clearly now.

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Replying to rmillaree:
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By Hugo Fair
08th Oct 2021 14:48

And now we have Johnny Nash impersonators :-)

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Replying to Hugo Fair:
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By Hugo Fair
08th Oct 2021 15:25

... who of course hit the big time with "There are more questions than answers"!

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Replying to lionofludesch:
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By Paul Crowley
07th Oct 2021 19:35

But think how much fee he saved doing it himself

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Jason Croke
By Jason Croke
07th Oct 2021 16:00

You say the client has submitted nil returns. Do you mean he has submitted returns but for Nil value or has he not submitted any returns at all?

If he has submitted returns, albeit for Nil, then it is going to be near-impossible. HMRC do not allow a taxpayer to come off the flat rate retrospectively unless the error was with HMRC or unless returns have not yet been filed.

HMRC internal manuals guidance here
https://www.gov.uk/hmrc-internal-manuals/vat-flat-rate-scheme/frs4100

As you will see, HMRC have a narrow discretion here but it may be worth arguing Brexit confusion/new rules from January 2021 (not that Brexit actually changed anything, an exporter should never use the flat rate scheme, but worth a punt).

Else, client has under declared output tax and needs to submit amended returns for at least Oct-Mar.

Thought one. Are we talking sale of goods here or services? If services then services to overseas customers is usually outside the scope of VAT and outside scope sales do not go into the flat rate return calculation anyway.

Thought Two. HMRC may take your March letter and most likely will reject your backdated request but will likely accept your letter as withdrawing from FRS from date the letter was received by HMRC (ie, sometime in March ).

When you ordinarily request to come off FRS, HMRC guidance states to assume you have come off the FRS from the date you specified (but in your case you are asking to backdate which is unlikely to be accepted), so if you had asked to come off in March, which is when you sent/they received the letter, then you are off the FRS from end of March...this limits your clients output tax liability to just Oct-Mar.

What I'm trying to say is that you can perhaps safely assume the client has left the FRS from the date of your letter you sent in March, and if we presume HMRC will reject your backdated request then we have to assume HMRC will accept from March, but it might be worth sending your letter again with an edit to say in the situation HMRC reject backdating, can we go with the March date when the letter was originally sent.

At least then going forwards you submit returns on the assumption you left the FRS in March (notified to HMRC in March and 2nd letter to reiterate that) and that sorts out future returns, we then just have the uncertainty of whether HMRC will accept the backdating, so maybe don't amend the historical returns just yet, wait until HMRC reply, which could be several months as they are so backlogged....which benefits your client.

If HMRC write back and allow the backdating then your client has nothing to pay, if HMRC write back and say not a chance, then calculate the VAT liability between Oct-Mar and its an expensive lesson learnt.

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By rmillaree
08th Oct 2021 09:30

"We wrote to hmrc 22 March to apply to get out of scheme, from the start. No answer yet.What can we do? What about returns in the interim?"

This is standard practice they take forever to process- you need to make judgment call here.

Normally as long as
(1) you apply to leeave flat rate before return has been filed
and
(2) filing deadline has not passed for relevant return coveringperiod in which you choose to leave

Then it should be a given that hmrc will rubber stamp your application and you can proceed on the basis this approval would be accepted. Personally i like to ring thee vat office and ensure they have application on file.

If you have not met conditions 1 and 2 above then you are at the mercy of the vat office as it will be at their discretion whether they allow you to leave.My slight worry here is that filind deadlinefor first period may have passed perhaps?

Note there is mention on this thread of minimum period you need to stay on the flat rate - i am not aware that there are any such conditions - hopefully if there are any such restrictions someone will provide proof to settle that one. If there are such restrictions then ignore my above comments.

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By the_fishmonger
11th Oct 2021 13:25

I haven't had to remove a client from the FRS for three years but, up to Jan '18 we emailed this address:

[email protected]

If it still works, your client will generally get a letter confirming withdrawal from the scheme within a month.

You will need to state you hold 64-8, that they wish to leave FRS and all returns are up to date.

They won't reply to agents, so you have to wait to hear from the client; but, unless it's now a defunct email address, you should be able to rely on having served HMRC with the request. Keep the email!

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