My client has previously been using the Flat Rate Scheme (FRS) but now wishes to change to normal accounting method. He applied to leave with effect from the start of his current VAT period but HMRC have refused this date, advising his leaving date will be the start of the next VAT period. Can my client leave retrospectively?
Case Law shows that Tribunals agree retrospective entry to, and thus by extension, exit from FRS from a date from which no VAT returns have been submitted as from that time the taxpayer has not taken advantage of the purpose of FRS, this being the reduced burden for record keeping and administration.
This is now supported by the wording of HMRC guidance at para 12.1 of VAT Notice 733 which states “HMRC will agree to a date in the previous accounting period if you have not already submitted your return under the flat rate scheme.” as well as HMRC’s online guidance in FRS4100 which states “You should normally refuse an earlier date where the business has already calculated its VAT liability for the period(s) using the FRS accounting method. This is because the FRS exists to simplify VAT accounting and record keeping, so allowing a business to spend less time on VAT.”
As your client has yet to submit the return for his current VAT period you should request that HMRC reconsider the exit date on the basis of their own guidance.
Tony Pocock, Vantage VAT Consultant
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