Share this content

Flat Rate Scheme Reverse Charge VAT & Threshold

Didn't find your answer?

Search AccountingWEB

Recently I decided to inform HMRC that my limited company would be switching from flat rate scheme to standard VAT from the beginning of the next VAT period (1st Feb). I then received a letter informing me that this couldn't happen as they had already removed the business from the flat rate scheme back in Dec 2017 due to the business going over the turnover threshold and that I needed to complete a VAT errors form by 23rd Feb. I didn't receive any notification back in Dec 2017 and didn't know I had been removed. I have continued to complete VAT returns as if on the flat rate scheme until now. 

I phoned the VAT helpline to try and figure out the issue as I had been very careful to ensure the business did not go over this threshold and had been calculating turnover on rolling 12 months every month to track etc. Whilst speaking to the guy on the VAT helpline we figured out the issue seems to be around reverse charge transactions. The business is online and pays for services (Amazon and Etsy fees as example) which have to be accounted for by reverse charge. The VAT for these has always been put into Box 1 and Box 2 on the VAT returns. The net amount has also been entered into Box 6 and Box 7 following the guidelines on VAT Notice 70012. I was under the impression that in terms of the Flat Rate threshold only sales were included and reverse charge transactions for service purchases were not (notice 733). Therefore using this understanding the business has not breached the threshold and should not have been removed from the flat scheme and also explains why I've continued doing returns as if on the flat rate scheme. Turnover for the past 12 months has also been less so has been under £230k even if the value of these are included.  

The person from the VAT helpine informed me that the net value of the reverse charge services purchased should not have been input on the VAT returns in box 6 or 7 and only the VAT for these should be in Box 1 and 4 which was done. He has informed me to write a letter to HMRC giving new figures for boxes 6 and 7 excluding the net value of reverse charge service purchases and an explanation and that the figures will be updated which will then show the business did not breach the threshold and I should continue the original plan of working on standard rate from 1st Feb. 

So the main question is apart from whether this sounds correct is whether reverse charge for services purchased net value should be put into boxes 6 and 7 for flat rate and if they are and the helpline is incorrect do they count as part of the turnover for threshold purposes? Searching the internet brings very little back on this?



Please login or register to join the discussion.

13th Feb 2019 09:00

Normally I would include the value of Reverse Charge services in Boxes 6 and 7. But Notice 733, para 6.4 indicates that these transactions should be excluded from the FRS.
Whether this means they are excluded from your total turnover is a separate question, and I think is not clear. Should they seek to raise a penalty for any errors, you can argue reasonable excuse.

Thanks (1)
Share this content