Appealing against removal from the VAT flat rate scheme
Discussion
I've received a notice VAT 89 of removal from the flat rate scheme as the tax inclusive value of our supplies in the last 12 months has exceeded the threshold.
This has been a "one off" year with an amount of overseas consulting work where a fair chunk of travel expenses have been billed to the client in the UK and subject to VAT. I'm also planning to go into R&D mode for a while and hold off from fee-earning work.
The notice says that I can appeal in writing to remain within the scheme and will need to demonstrate that
- Turnover for the coming year will not exceed the entry threshold for the scheme (should be OK, but how to prove that?)
- The increase in the past 12 months is a "one off" and not expected to recur
- Sales were due to genuine commercial activity
I wondered whether anyone here has successfully appealed against removal and how did they demonstrate that hitting the threshold was the result of one-off circumstances?
Having to fully account for all VAT would be real pain...
This has been a "one off" year with an amount of overseas consulting work where a fair chunk of travel expenses have been billed to the client in the UK and subject to VAT. I'm also planning to go into R&D mode for a while and hold off from fee-earning work.
The notice says that I can appeal in writing to remain within the scheme and will need to demonstrate that
- Turnover for the coming year will not exceed the entry threshold for the scheme (should be OK, but how to prove that?)
- The increase in the past 12 months is a "one off" and not expected to recur
- Sales were due to genuine commercial activity
I wondered whether anyone here has successfully appealed against removal and how did they demonstrate that hitting the threshold was the result of one-off circumstances?
Having to fully account for all VAT would be real pain...
Will your turnover stay permanently below the threshold or is that just wishful thinking on your part?
VAT is strange in that, because of various turnover thresholds for basic registration and staying in the various schemes, it encourages businesses to stifle their natural growth in an effort to stay below these thresholds.
VAT is strange in that, because of various turnover thresholds for basic registration and staying in the various schemes, it encourages businesses to stifle their natural growth in an effort to stay below these thresholds.
It's hard to be a Mystic Meg - but VAT requires you to be one. I'm sure you can tell HMRC that you will be below the threshold and they will let you go back to the Flat Rtae scheme. But if you get it wrong, you will be in big trouble.
Also, transitioning between Flat Rate and Normal VAT is messy.
Normal VAT is not that bad. Flat Rate is supposed to be for very small businesses. If you are no longer very small, look on it as a good thing that you are now big enough to do proper VAT returns.
Also, transitioning between Flat Rate and Normal VAT is messy.
Normal VAT is not that bad. Flat Rate is supposed to be for very small businesses. If you are no longer very small, look on it as a good thing that you are now big enough to do proper VAT returns.
Thanks Eric, I'll take your advice and not appeal. Flat rate has worked very well both because the admin is practically zero - just tot up the inputs once a quarter - and we have had very little VAT-rated outgoings, as most of the spend has been on flights and overseas hotels, car hire, some UK train and parking.
mikef said:
Thanks Eric, I'll take your advice and not appeal. Flat rate has worked very well both because the admin is practically zero - just tot up the inputs once a quarter - and we have had very little VAT-rated outgoings, as most of the spend has been on flights and overseas hotels, car hire, some UK train and parking.
I'm sure you meant to say "just tot up the OUTPUTS once a quarter"?Are any of your sales/outputs Zero Rated?
Quite right Eric, the outputs
I do have a grand or so of EC services sales, mainly Google advertising (and under flat rate have had to include the VAT I never actually got to charge on that, so that's one advantage of switching I guess)
Is a VAT inspection more likely once on the normal scheme would you say?
I do have a grand or so of EC services sales, mainly Google advertising (and under flat rate have had to include the VAT I never actually got to charge on that, so that's one advantage of switching I guess)
Is a VAT inspection more likely once on the normal scheme would you say?
Interesting thread... I'm in a frustrating position of not being able to register for FRS because I've exceeded the registration threshold (£150k net) whilst being on the standard scheme, yet my turnover is unlikely to exceed the threshold at which you get kicked out (~£230k gross). Therefore I'm prevented from benefitting from the FRS despite my turnover being the same or less than many other businesses which grew at a slightly slower rate. I'm actually contemplating taking a break to bring the turnover back down below the threshold.
It is perverse that people deliberately restrict their business because of VAT. You are far better buiklduing your business than artificially restricting it.
Flat Rate is not a huge advantage - don't be fooled into thinking it is a massive saving on normal VAT. There are lots of disadvantages to the Flat Rate Scheme
Flat Rate is not a huge advantage - don't be fooled into thinking it is a massive saving on normal VAT. There are lots of disadvantages to the Flat Rate Scheme
But it does have advantages, when it suits the characteristics of certain businesses.
I have a SME business (a few million) turnoverwhich operates on the normal vat scheme, but also another which uses the flat rate scheme as the benefit of doing so is not an insignificant sum (ie pays for a car).
I would agree with Eric that you shouldnt restrict your business solely for this reason, but if it's plausible to run part of a larger one through it to your benefit, then to definately consider it.
I have a SME business (a few million) turnoverwhich operates on the normal vat scheme, but also another which uses the flat rate scheme as the benefit of doing so is not an insignificant sum (ie pays for a car).
I would agree with Eric that you shouldnt restrict your business solely for this reason, but if it's plausible to run part of a larger one through it to your benefit, then to definately consider it.
Hobo said:
But it does have advantages, when it suits the characteristics of certain businesses.
I have a SME business (a few million) turnoverwhich operates on the normal vat scheme, but also another which uses the flat rate scheme as the benefit of doing so is not an insignificant sum (ie pays for a car).
I would agree with Eric that you shouldnt restrict your business solely for this reason, but if it's plausible to run part of a larger one through it to your benefit, then to definately consider it.
HMRC specifically does NOT allow a business to split itself into separate bits in order to keep one or multiple bits under different VAT thresholds.I have a SME business (a few million) turnoverwhich operates on the normal vat scheme, but also another which uses the flat rate scheme as the benefit of doing so is not an insignificant sum (ie pays for a car).
I would agree with Eric that you shouldnt restrict your business solely for this reason, but if it's plausible to run part of a larger one through it to your benefit, then to definately consider it.
They refer to this as disaggregation.
If there are separate parts to a business and the Flat Rates that apply to the different parts are different rates, then the trader has to apply the rate that applies to the larger portion of the business to the whole business. This can be a very tricky aspect of the Flat Rate Scheme to apply and a number of traders have come unstuck on this.
The other aspect of Flat Rate VAT that many, many traders get wrong is in entering the figures in the VAT return boxes. They follow the guidelines on the return - which are WRONG for Flat Rate.
Eric Mc said:
The other aspect of Flat Rate VAT that many, many traders get wrong is in entering the figures in the VAT return boxes. They follow the guidelines on the return - which are WRONG for Flat Rate.
Although they are obviously wrong..Anyway thanks for this thread I nearly had a heart attack when the EC sales were mentioned as being included within the Flat Rate Turnover. Luckily after refreshing my notes EC Services (property) where carried out in another country are not. I hope.
surveyor said:
Although they are obviously wrong..
Anyway thanks for this thread I nearly had a heart attack when the EC sales were mentioned as being included within the Flat Rate Turnover. Luckily after refreshing my notes EC Services (property) where carried out in another country are not. I hope.
As I said FRS is actually quite complex. Anyway thanks for this thread I nearly had a heart attack when the EC sales were mentioned as being included within the Flat Rate Turnover. Luckily after refreshing my notes EC Services (property) where carried out in another country are not. I hope.
Supply of services to EU VAT registered customers is "Outside the Scope" (if the service is supplied by you in that EU country).
Sale of goods to VAT Registered EU customers is Zero Rated and therefore MIST be included in your Flat Rate Sales calculations.
Originally, HMRC insisted that bank interest received had to be included in your Flat Rate Turnover calculation. However, they changed their mind on that following a VAT case.
If you can sit in the 'sweet spot' of circa £180-190k turnover as a contractor with minimal input VAT then the FRS could be worth nearly £5k in profit as well as saving several days worth of time over the course of the year by simplfying returns - it's not insubstantial. Plus you can still reclaim VAT on the proverbial Macbook Pro and any other company assets which cost >£2k - having your cake and eating it comes to mind!
On the other hand it discourages activities in which the profit margin would be wiped out by inability to reclaim VAT such as subcontracting and reselling equipment - the sort of activities that might help distinguish one as being 'in business' when assessing IR35 risk.
So, I try and do as much of the above as possible and hope that the hopefully improved IR35 position makes up for any perceived loss by not being FRS.
On the other hand it discourages activities in which the profit margin would be wiped out by inability to reclaim VAT such as subcontracting and reselling equipment - the sort of activities that might help distinguish one as being 'in business' when assessing IR35 risk.
So, I try and do as much of the above as possible and hope that the hopefully improved IR35 position makes up for any perceived loss by not being FRS.
Eric Mc said:
surveyor said:
Although they are obviously wrong..
Anyway thanks for this thread I nearly had a heart attack when the EC sales were mentioned as being included within the Flat Rate Turnover. Luckily after refreshing my notes EC Services (property) where carried out in another country are not. I hope.
As I said FRS is actually quite complex. Anyway thanks for this thread I nearly had a heart attack when the EC sales were mentioned as being included within the Flat Rate Turnover. Luckily after refreshing my notes EC Services (property) where carried out in another country are not. I hope.
Supply of services to EU VAT registered customers is "Outside the Scope" (if the service is supplied by you in that EU country).
Sale of goods to VAT Registered EU customers is Zero Rated and therefore MIST be included in your Flat Rate Sales calculations.
Originally, HMRC insisted that bank interest received had to be included in your Flat Rate Turnover calculation. However, they changed their mind on that following a VAT case.
Indeed here are a lot of catches and it can ruin choices - e.g. I cant really choose a VAT registered website builder as it will cost me an extra grand of unclaimable VAT if the bill is £5k making the scheme very disadvantageous. The small 'profit' you regularly make on the VAT offsets the vat you cant reclaim on smaller purchases (fuel, consumables, computer bits etc). I think it is an instance of government really helping small businesses and reducing their admin headaches - it costs me nothing in accountancy fees as I do it myself and its only about 20 mins every quarter.
matt-ITR said:
theboss said:
Plus you can still reclaim VAT on the proverbial Macbook Pro and any other company assets which cost >£2k - having your cake and eating it comes to mind!
I thought that if you were on the FRS for VAT you could not reclaim anything on purchases?The downside is that you must declare NORMAL Output VAT on these when they are sold or taken out of the business by the proprietor.
Eric Mc said:
you must declare NORMAL Output VAT on these when they are sold or taken out of the business by the proprietor.
Is there a write off period Eric? I'm thinking for things we actually claim for as £2k+ capital assets like cameras/lenses/laptops etc Hasn't happened yet as it would be like selling a child...but then when they become outdated they are unsellable anyway.Gassing Station | Business | Top of Page | What's New | My Stuff