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Flat Rate Scheme Anniversary date

is it the day you applied or the day before?

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I have a client who is on flat rate VAT.  They are well over the turnover threshold for the year ending 31st December so need to come off.

They were registered for VAT & the FR on the 1st January

On the turnover test is says under 12.2 

https://www.gov.uk/government/publications/vat-notice-733-flat-rate-sche...

That you must leave  "the end of the VAT period containing your anniversary"

I took the anniversary to be, 1st Jan, so the period contained this would be 1st Jan to 31st March, therefore the period ending would be 31st March, ie to start normal accounting from 1st April.

Client however has had a letter telling them to come off the flat rate scheme from 1st Jan.  

Is there some further guidance which specifies what they mean by the Anniversary date?  In the example given here for the annual accounting scheme, it seems the date is the day of joining and not the preceding day:

https://www.gov.uk/hmrc-internal-manuals/vat-flat-rate-scheme/frs4200

So in conclusion am I right the client can should they chose to - remain on the FR until 31st March despite the notice from HMRC?

 

Replies (13)

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By Cylhia66
23rd Mar 2021 19:29

c

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By fawltybasil2575
23rd Mar 2021 22:34

@ ireally . . . (OP).

On the basis of the facts in your question and , subject to the caveat below, you are entirely correct. The anniversary date being 1 January 2021, and as that date falls within the quarter to 31 March 2021, the last quarter within FRS is the quarter to 31 March 2021.

It is not unprecedented for HMRC to make the mistake to which you refer. A letter to HMRC, pointing out their error, is recommended. The current ineptitude of HMRC in relation to attending to (frequently ignoring) correspondence should not cause you concern and, if you do not receive a response within 4 weeks, just send one reminder and leave it at that.

Submit the Return for the quarter to 31 March 2021 on the basis of FRS.

My comments above assume that the HMRC letter is of a “general” nature, simply stating that the FRS should not be operated from 1 January 2021 in view of its having been operated from 1 January 2020.

The tiny “caveat” referred to above is that HMRC have powers, under Reg 55P of the VAT Regulations 1995, to cancel FRS, where they consider use of FRS to be abusive: importantly, however, if they believed that such abuse existed, their letter would have specified their use of Reg 55P - since you make no reference thereto, I assume that the letter to which you refer made no reference to that Regulation.

Basil.

Thanks (2)
Replying to fawltybasil2575:
By ireallyshouldknowthisbut
24th Mar 2021 09:34

Basil, many thanks. I wasn't going mad.

HMRC letter is as ever rather poor and merely says "you'll therefore be removed form the scheme form the end of the current tax period" without specifying that period, or making reference to anniversary dates.

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Replying to ireallyshouldknowthisbut:
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By Tax Dragon
24th Mar 2021 09:54

Oh, so not "Client however has had a letter telling them to come off the flat rate scheme from 1st Jan" as per your OP? HMRC letter is, instead, correct?

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Replying to Tax Dragon:
By ireallyshouldknowthisbut
24th Mar 2021 09:58

I hadn't seen the letter until this morning, but the implication is the same in that it was received in Q4 essentially a quarter early. I think it may be because they went over in Q3.

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Replying to ireallyshouldknowthisbut:
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By Tax Dragon
24th Mar 2021 10:02

Edit.

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By fawltybasil2575
23rd Mar 2021 22:35

@ ireally . . . (OP).

On the basis of the facts in your question and , subject to the caveat below, you are entirely correct. The anniversary date being 1 January 2021, and as that date falls within the quarter to 31 March 2021, the last quarter within FRS is the quarter to 31 March 2021.

It is not unprecedented for HMRC to make the mistake to which you refer. A letter to HMRC, pointing out their error, is recommended. The current ineptitude of HMRC in relation to attending to (frequently ignoring) correspondence should not cause you concern and, if you do not receive a response within 4 weeks, just send one reminder and leave it at that.

Submit the Return for the quarter to 31 March 2021 on the basis of FRS.

My comments above assume that the HMRC letter is of a “general” nature, simply stating that the FRS should not be operated from 1 January 2021 in view of its having been operated from 1 January 2020.

The tiny “caveat” referred to above is that HMRC have powers, under Reg 55P of the VAT Regulations 1995, to cancel FRS, where they consider use of FRS to be abusive: importantly, however, if they believed that such abuse existed, their letter would have specified their use of Reg 55P - since you make no reference thereto, I assume that the letter to which you refer made no reference to that Regulation.

Basil.

Thanks (1)
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By Tax Dragon
24th Mar 2021 06:44

Is the anniversary of your birth your birthday, or the day before?

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Replying to Tax Dragon:
By ireallyshouldknowthisbut
24th Mar 2021 09:38

I had logic beat out of me many years ago. Logic does not exist within VAT.

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Replying to ireallyshouldknowthisbut:
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By Tax Dragon
24th Mar 2021 09:58

Apply law not logic, I agree.

And I love the law when it does things like define what a "year" is (although normally it does so in terms of it being a period of 12 months, without defining "month", which maybe doesn't take you very far forward).

"Anniversary" though means "anniversary". Even in law.

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By fawltybasil2575
24th Mar 2021 10:45

@ ireally . . . (OP).

Your 9.58 post says:-

“I hadn't seen the letter until this morning, but the implication is the same in that it was received in Q4 essentially a quarter early. I think it may be because THEY WENT OVER IN Q3 (my emphasis)”.

I suspect that your reasoning is sound, ie that HMRC looked at the taxable outputs on the VAT Return for the quarter to 30 September 2020 and, noting that the taxable outputs for the nine months to 30 September 2021 was a substantial figure, they issued the letter in the period 1 October 2020 to 31 December 2020.

HOWEVER, if such be the case, HMRC were WRONG to issue that letter. The taxable turnover for the nine months to 30 September 2020 is IRRELEVANT: as long as the adoption of FRS with effect from 1 January 2020 was in good faith, ie in EXPECTATION that the future taxable turnover would not exceed the relevant figure, then the fact that hindsight established later that the taxable turnover was greater than expected is no justification for HMRC’s issuing the letter: crucially (to labour the point) as long as the FRS application is in good faith, then the trader has a “clear run” until he needs to review (after the opening 12 months) whether he can remain in FRS; with the effect that your client can remain in FRS for 15 months to 31 March 2021.

Your 9.34 post today says that the HMRC letter included the wording:-

"you'll therefore be removed from the scheme from the end of the current tax period".

For the reason outlined above, I would be very interested to see the wording of the HMRC letter immediately PRECEDING the above extract from the HMRC letter.

Basil.

Thanks (1)
Replying to fawltybasil2575:
By ireallyshouldknowthisbut
24th Mar 2021 11:34

it says "our records show that you're no longer eligible to use the Flat Rate Scheme because the tax inclusive value of all your supplies in the last 12 months exceeds £230,000. You'll therefore be removed from the scheme from the end of the current period"

Letter dated in Q4 of the VAT period.

This letter would seem to not refer at all to the correct test period, nor anniversary date, nor specify which period it refers too. No wonder its wrong.

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By fawltybasil2575
24th Mar 2021 12:38

@ ireally . . . (OP).

Thank you for your post at 11.34 . This fully explains the HMRC error. I suggest a letter to HMRC, along the lines of:-

“I refer to your letter of xx/xx/xxxx, addressed to my above client.

Whilst you correctly state that the 'tax inclusive value' up to 30 September 2020 exceeded the figure of £230,000, you are INCORRECT in contending that this results in the FRS scheme requiring to be terminated at the end of the 'current period' (per your letter) ie the quarter to 31 December 2020.

The legislation does not support your contention, and my client was entitled to remain in FRS up to 31 March 2021 (under the regulations which required consideration to be given to this matter on each anniversary of the start of the FRS scheme, ie on 1 January 2021, such that withdrawal from the FRS will take place at the end of the quarter which includes that anniversary date ie, to reaffirm, 31 March 2021).

I respectfully request your handing this matter to a more senior HMRC officer, and look forward to receiving their agreement to my above comments, and a withdrawal of the contention in your letter of xx/xx/xxxx, within the next 10 days”.

Basil.

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