My client provides transport services, mainly to the local council for taking children to school. They have been using the VAT flat rate scheme. In February HMRC issued a 'Removal from the Flat Rate Scheme' notice as turnover had exceeded £230,000.
An appeal was made as the increased turnover was due to Covid restrictions - the children had to be transported separately especially if different schools were involved, so more journeys were required, and this was a temporary arrangement and turnover was expected to drop below £191,500 once Covid restrictions were lifted. A final VAT return was filed using the FRS (again showing them over the £230k threshold), then rather to my surprise HMRC wrote to me to say they could remain on the FRS scheme and 'we have re-instated you onto the scheme from 1 January 2021'.
Unfortunately, 5 days later they issued a 'Refusal to use the Flat Rate Scheme' notice direct to my client. As the two letters appeared to contradict each other I phoned the VAT Helpline to try and clarify the situation. The advisor did her best to be helpful but couldn't give me a definite answer and suggested I e-mail the Flat Rate Scheme department - which I did. The e-mail wasn't returned undelivered, but to date no reply has been received, and another VAT return needs to be filed by the end of next week.
So do I file the return using the flat rate scheme (which is advantageous) or not?
No recent applications to join the FRS have been made so the refusal must be related to the HMRC re-instatement, and could be based on an automated process that did not take account of the grounds for the appeal.
I have told my client that I think the most recent refusal letter will represent the HMRCs current position, and they should stop using the scheme, but I am thinking it might be better to file using the FRS and warn my client they may have to pay extra later, if that proves to be incorrect but I am unsure if that could risk penalties.
Has anyone any thoughts on this?