Flat Rate Scheme Application

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Hi All,

I have made an application on behalf of a client to use the Flate Rate Scheme (FRS) for VAT.

Previously I have always made my clients aware of the VAT liability under FRS which they have paid over on time, but I have held off submitting the Returns until FRS was confirmed. As the VAT was paid no penalties/fines were imposed.

Now, with the change in penalties, etc, how would one proceed?

I am currently on hold with HMRC to check progress of the applcation, but I anticipate it has yet to be to be dealt with.

Has anybody else found themselves in this situation?

I guess my options are:

1. Submit the VAT assuming my client has been accepted, and pay the VAT accordingly.

2. Submit using traditional method as no confirmation recieved, and pay the VAT accordingly.

My concern with option 2, is on the FRS application I selected the start date to be that of the first outstanding VAT quarter.

Replies (2)

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VAT
By Jason Croke
31st Oct 2023 11:31

My take on this is that as long as you are happy that your FRS application is valid nd conditions for using it are met (ie, not trying to backdate it, not trying to change with outstanding VAT returns/liabilities, etc) then there is no reason why HMRC will reject the application, so file the VAT returns on the assumption you are on the flat rate scheme.

But OP notes that there is an outstanding VAT quarter, so that is a problem. Have a read of HMRC's internal manuals https://www.gov.uk/hmrc-internal-manuals/vat-flat-rate-scheme/frs3200 and note that generally you can't wait until the end of your first return to then crunch some numbers to see if you are better off or not using FRS. HMRC may still accept a belated FRS notification.

In light of the outstanding issue, it may be more prudent to submit the VAT return assuming you are not on the FRS. Then if HMRC accept FRS backdated, then you can submit a VAT652 to amend the return and reflect the correct FRS VAT liability. If HMRC reject the FRS backdating, then client has paid the correct amount of VAT on time, no penalties or interest (whereas if you submit and pay based on FRS, then there will possibly be a shortfall of VAT and therefore potential for interest charges, but might be very small??) Client can always appeal the decision and if they win the appeal, they can submit a VAT652 to correct the position.

Appreciate clients will be clients, but when clients mention FRS then it's best to get that decision made at the start and do it with the VAT registration as that way it removes any uncertainty and avoids additional costs of having to submit VAT652s

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Replying to Jason Croke:
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By rmillaree
31st Oct 2023 16:30

It looks to me as if the vat office may have slighty tweeked their guidance.

ref application for start of most recent period

Last time i looked it was basically ok as long as vat return figures had not been finalised and the vat return was not late.

I note the guidance has been slightly tweeked and now says the following.
Note this possibly gives some leeway (if you want to take a viewpoint that suyits you). Some may argue until you have done all the checks on a vat return on a particular method that you havent fully calculated the "liability". Particularly if you know you may do flat rate you may be getting info on asap simply pulling through obvious vat in the knowledge that its just comparative info and vat will calculated on flat rate basis when proper calc are done. Flipping to flat rate vat before you finalise calcs certainly takes away the uncertainty of teh query expenses that might have vat on but you dont have proof to hand at time you have done data entry - its certainlya benefit admin wise not having to query those are they input vat expenses or not.

In sumamry the way you go about calculating your vat figures might affect how you would answer this questions if asked.

The policy is to refuse retrospection where the business has already calculated its VAT liability for the period(s) using a different accounting method (but see next bullet, below). The reason for this is that the FRS exists to simplify VAT accounting and record keeping for small businesses, so that they are able to spend less time on VAT. If allowing retrospection will enable the business to benefit in this way, then you should consider granting the request. This policy has been well supported in a number of cases, most notably in the High Court case of David Eric Burke ([2009] EWHC 2587).

I have never had an issue backdating to start of most current not overdue period when i have not finalised vat figures previously on anotehr scheme. I have checked several times ref submitting return on basis flat rate would be accepted and vat office have never said "dont do that" . So whilst uncertainty abounds here practicably speaking i have never run into any issues personally doing what you would like to do.

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