Switching from Standard (Accrual) VAT to Flat Rate

Can you register a business for standard VAT, claim past 4 years purchases, then switch to flat rate

Didn't find your answer?

Hi all,

My business has just voluntarily registered for VAT, due to the commencement of contract work that includes VAT. 

When registering the Standard Accrual VAT was selected, and the business now has a VAT number. It has not yet completed its first VAT return, the first period ends 29th February 2024.

I have two questions:

  • As I understand it, in the Accrual VAT rate, I can claim VAT on purchases from past 4 years prior to registration, and services prior to 6 months. Is this correct? Would I be able to apply this to the first VAT return? (It would be for around £950 worth of VAT in purchases/services, the output tax for first period would be higher than this, so wouldn't be a refund from HMRC rather a lower first VAT bill)
  • Am I able to switch from this Accrual VAT rate to Flat rate? If yes, again as I understand it as it's the first year of VAT Registration the business could apply for 1% discount on the rate. Moving forward there will be minimal expenses.

The crux of these 2 questions together is, is it permitted to register for accrual, get the VAT relief for past 4 years purchases/6 months services on first VAT return, then switch to flat rate as it will be better moving forward? Or is such an approach not permitted, or prevented by claiming prior VAT expenses like this.

I have found a little on HMRC and other sources around switching VAT rates, however this particular scenario I haven't seen any information on.

Many thanks

Replies (7)

Please login or register to join the discussion.

avatar
By rmillaree
27th Jan 2024 16:24

"As I understand it, in the Accrual VAT rate, I can claim VAT on purchases from past 4 years prior to registration"

Nope thats plain wrong - vat on assets still at hand and stock on hand at vat reg date only

ref your specific question whether you use flat rate or not doesnt matter - either way you can claim then same value of pre registratiojn input vat - so going onto flat rate day one doesnt affect anything in that regard.

Thanks (2)
Replying to rmillaree:
avatar
By vinmusic85
27th Jan 2024 16:34

Thanks rmillare, sorry for my clumsy wording, I did mean purchases that are still assets... Company laptop and equipment, still used for work moving forward.

Didn't realise I was allowed to claim pre registration input tax if on flat rate. The guidance saying how assets less than £2000 not claimable on flat rate made me think couldn't.

Having only very recently registered, on accrual, how soon can I move onto flat rate? Next accounting period?

Thanks (0)
Replying to vinmusic85:
avatar
By rmillaree
27th Jan 2024 16:53

Didn't realise I was allowed to claim pre registration input tax if on flat rate. The guidance saying how assets less than £2000 not claimable on flat rate made me think couldn't.

the thing is you jopind the flat rate at earliest day one of registraion - those expenses all pre date the date of registration so you were not on the flat rate at that time.

how soon can I move onto flat rate? Next accounting period?
you can go on this period as long as return isnt late and hasnt been quantified you are fine to request flat rate for this period - if you are alwasy limited cost trader just forget about the flat rate entirely for reasons stated on other post.

Thanks (0)
Danny Kent
By Viciuno
27th Jan 2024 16:25

vinmusic85 wrote:
. Moving forward there will be minimal expenses.

I'd first be looking to see if you would then be classed as a limited cost trader before going any further.

Thanks (1)
Replying to Viciuno:
avatar
By vinmusic85
27th Jan 2024 16:42

Looking at it, likely yes I will, thanks for the suggestion

Thanks (0)
Replying to vinmusic85:
avatar
By rmillaree
27th Jan 2024 16:49

flat rate is full of "cons" that will make you get it wrong not tell you waht to do or screw you over.

note if limited cost trader you pay across 19.99 % of 20.00% vat you bill as 16.5% is calculated on the vat inclusive turnover (another con)

practicably speaking its almost a statistical certainty if you are flat rate and limited cost that you will be worse of than normal vat - thats on teh basis you do actual have a couple of vatable expenses.

Thanks (1)
avatar
By Sandnickel
28th Jan 2024 09:51

Just a point that has yet to be clarified. You can't just change to FRS, you have to apply to join and HMRC give you a date when it starts from.

Thanks (1)