Leaving Flat Rate Scheme

[matzie]

For the benefit of anyone searching for this thread - things have changed and arguably it is possible to notify HMRC after you left the scheme in some circumstances:

"If you wish to leave the scheme you must write and tell HMRC. They would expect that most businesses will leave at the end of an accounting period. However, you may leave voluntarily at any time during an accounting period. HMRC will confirm the date you left the scheme in writing. You must not account for VAT using the scheme after the date you left even if you have not yet received confirmation of the date you left the scheme. HMRC will agree to a date in the previous accounting period if you have not already submitted your return under the flat rate scheme."

from VAT Notice 733 Section 12

Mike Thexton of Taxation.co.uk interpret this as meaning:

"The leaving date is normally the one it notifies, but an earlier date can be agreed. If a business has not already submitted a VAT return under the FRS for a period, HMRC will agree a leaving date at any time in the period, even before the date of notification. It is still necessary to notify, but the business can use standard VAT accounting (in other words, start to recover input tax again) from the date that it has chosen without waiting for a response from HMRC. VAT Notice 733: flat rate scheme for small businesses has been updated to show that HMRC will agree the earlier leaving date.

For example, in June a trader is completing a VAT return for the quarter to 31 May. She realises she is a limited cost trader and no longer wants to use the FRS. She can notify HMRC to say that she left the scheme on 1 April. However, she is notifying HMRC that she left earlier, rather than asking whether she can leave: a general agreement has already been granted. She can then complete the VAT return under the FRS for the first part of the period and under standard VAT accounting for the remainder.

After HMRC has processed the notification, confirmation of the scheme leaving date will be sent to the trader."

(https://www.taxation.co.uk/Articles/...at-rate-scheme)

[BrilloPad]

Its okay with the 1% discount for first year. After that I am out.

[TheCyclingProgrammer]

The above post is incorrect. Only people who meet the definition of low cost trader is on the 16.5% rate. Admittedly that’s probably most IT contractors but it’s certainly not everyone.

[poorautojobber]

Prefacing this with I'm not an accountant and you should talk to yours but I'm surprised by some things you are saying.

My understanding is that you should be getting paid a fixed % back from HMRC.

I.E.

You normally recover of £1,000 VAT payments and pay £200 of VAT net if you do it all with receipts etc.

The %s are fixed in flat rate and it works out so you'd get the industry average of VAT recovery payments paid to you. So they'll just pay you £1,000 without bothering with receipts and you end up being net £200 out of pocket still.

I think the % is based off the industry average vatable cost base, which is relatively lower in software consultancy than say retail. Something like 14%-15%, obviously less than 20%.

i.e. it's good to be on flat rate if your vatable costs match or are lower than industry average OR the cost/hassle of dealing with the receipts side of things is lesser than the pay-off from standard VAT registration.

from 1st April everyone is on 16.5% no bands.

i had fun with HMRC they lost my letter requesting standard accounting. It's only taken them to last week to sort it out.

[Smackdown]

Does anyone have any advice on leaving the flat rate VAT scheme retrospectively.

I misunderstood that the changes to the flat rate scheme effectively means I will pay 20% on my turn over without being able to claim back VAT on outgoings.

I already lodged VAT returns since April under the old rate and HMRC have advised that I should write in to leave the scheme.

I would like to leave the scheme from 1st of April and claim overpaid VAT back.

Does anyone have any advice on what I should include in my letter to them to improve my chances of them accepting this?

Thanks

Prefacing this with I'm not an accountant and you should talk to yours but I'm surprised by some things you are saying.

My understanding is that you should be getting paid a fixed % back from HMRC.

I.E.

You normally recover of £1,000 VAT payments and pay £200 of VAT net if you do it all with receipts etc.

The %s are fixed in flat rate and it works out so you'd get the industry average of VAT recovery payments paid to you. So they'll just pay you £1,000 without bothering with receipts and you end up being net £200 out of pocket still.

I think the % is based off the industry average vatable cost base, which is relatively lower in software consultancy than say retail. Something like 14%-15%, obviously less than 20%.

i.e. it's good to be on flat rate if your vatable costs match or are lower than industry average OR the cost/hassle of dealing with the receipts side of things is lesser than the pay-off from standard VAT registration.

[Patrick@Intouch]

You will not be able to leave the FRS retrospectively.

HMRC will only allow the change from the beginning of the current VAT period and you will need to notify them of this in writing, either in a letter or by email.

If the VAT that you incur on costs (excluding capital equipment costing more than £2,000) is significantly more that the VAT that your company will retain under the flat rate scheme then it may be worth considering the switch.

Under the flat rate scheme you will not be charged 20% against your turnover but will instead pay most of the VAT the you collect on to HMRC. A company invoicing £100,000 and subject to the Limited Cost Trader category (without qualifying capital expenditure) would retain approximately £200 of the VAT that it collects and would benefit from the standard scheme if the VAT incurred on costs exceeded that level.

The other consideration here is that it will take you longer to check and record all of the VAT on purchases and the time that you spend doing this, or paying an accountant to, should be quantified and weighed against the difference in VAT.

[eek]

I'd recommend asking your accountant

+1 and you've no chance of doing this retrospectively....

Oh and if you haven't got an accountant think of all the money you might have saved if you had one so get one...

[Invisiblehand]

I'd recommend asking your accountant and posting this in the right forum.

[Norther]

Does anyone have any advice on leaving the flat rate VAT scheme retrospectively.

I misunderstood that the changes to the flat rate scheme effectively means I will pay 20% on my turn over without being able to claim back VAT on outgoings.

I already lodged VAT returns since April under the old rate and HMRC have advised that I should write in to leave the scheme.

I would like to leave the scheme from 1st of April and claim overpaid VAT back.

Does anyone have any advice on what I should include in my letter to them to improve my chances of them accepting this?

Thanks