Members will be aware that there will be changes to the VAT Flat Rate Scheme (FRS) coming into effect on 1 April 2017. We have received the following information concerning those changes.
VAT Notice 733
HMRC have issued revised their guidance in notice 733 on the VAT FRS. This may be found at https://www.gov.uk/government/publications/vat-notice-733-flat-rate-scheme-for-small-businesses/vat-notice-733-flat-rate-scheme-for-small-businesses.
HMRC have also provided a VAT FRS calculator which can be found here: https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay.
HMRC have advised that the attached letters will be sent out to all businesses on the FRS (between 15 - 24 March) and that an email will be sent to those business for which they have email addresses (between 9 - 14 March).
We were asked by a firm of advisers about two matters arising from the imminent introduction of the “limited cost trader” (LCT) rules into the FRS. The new regulations will be laid on 8 March 2017 and will come into effect on 1 April 2017.
Since they may concern quite a few members, we wrote to HMRC and have set out details below.
Leaving the scheme
The firm of advisers pointed out that it would be difficult to notify HMRC in advance of a client’s intention to leave the scheme. We therefore asked HMRC what their position was on notification and they have advised –
“The requirement to notify that someone will be leaving the scheme has not been removed. However this is a notification that they are leaving not an application, they do not need to wait for a letter from us to leave the scheme. If they wish to retrospectively withdraw they may do so if they have not already submitted a return. They would submit a return under standard VAT accounting and notify us of the date they left the scheme. We will not normally retrospectively withdraw trader from FRS if returns have been completed as FRS.”
The first returns under the scheme that will be affected by the LCT rules are likely to be those commencing around 1 February 2017. These will be due at the end of May 2017 so there should be time to look into clients’ positions and decide whether or not to account for VAT using the FRS for the period after 1 April 2017.
HMRC advise that the notification of leaving the scheme should be sent to frsapplications.vrs [at] hmrc.gsi.gov.uk or in writing to:
HM Revenue and Customs - National Registration Unit
77 Victoria Street
We also asked about “hybrid” returns ie returns that cover a period before 1 April 2017 and a period after that. We did not receive a specific reply on this issue, but it was addressed during HMRC’s Talking Points session on 1 March (a recording of the session can be found here: https://attendee.gotowebinar.com/recording/3710257288982894081) where they confirmed that the LCT rules / percentage only apply to the part of the return period which arises after 1 April 2017. The existing rules apply until then. So, it is quite possible that a trader could have a hybrid return where two FRS rates are applied: their ‘normal’ rate until 31 March 2017 and the ‘LCT’ rate from 1 April.
This appears consistent with the Statutory Instrument amending the scheme. In relation to accounting periods, this will provide that the new rules apply to –
“(b) the remaining portion of any prescribed accounting period which does not commence on but includes 1st April 2017, where “remaining portion” means that part of the prescribed accounting period which starts on 1st April 2017 and ends on the last day of the prescribed accounting period.”
It is therefore evident that the new rules apply only for that part of an accounting period that falls after 1 April 2017.