Tribunal case – VAT flat rate scheme
The Tribunal heard an appeal against HMRC’s decision not to allow a taxpayer to withdraw from the flat rate VAT scheme from a date prior to the date of his withdrawal request. The flat rate scheme was designed by HMRC to reduce the administrative burden on businesses and save businesses from many complex VAT accounting rules.
The taxpayer in this case, a sole trader with a plumbing business discovered that he was paying more VAT under the flat rate scheme than if he was accounting for VAT under the normal arrangements. The taxpayer applied on 28 May 2008 to withdraw from the flat rate scheme with effect from 1 December 2004, so that he would be treated as if he never joined it.
HMRC allowed the taxpayer to withdraw from the date of the application to withdraw but refused the request to allow a retrospective withdrawal. HMRC’s stated policy is that a retrospective application should only be allowed in exceptional circumstances.
The Tribunal agreed with HMRC that the circumstances at hand i.e. that the taxpayer paid more tax under the flat rate scheme than he would have under the normal VAT arrangements was not exceptional. The taxpayer’s appeal was dismissed. The Tribunal has some sympathy for the taxpayer but commented that the possibility of paying more VAT ‘is an inherent risk in joining the flat rate scheme’.
The Tribunal case serves as an important reminder that joining the scheme can result in taxpayers having to pay more tax than they would otherwise have paid under the normal accounting rules.