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HMRC internal manual

VAT Flat Rate Scheme

HM Revenue & Customs
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Treatment of Applications: If you decide to allow retrospection

If you have decided to allow retrospection then you should communicate your decision to the business in writing. But before doing so, check the following:

  • If the flat rate percentage for the business’s trade sector has altered during the period of retrospection, the relevant rates must be applied accordingly. (FRS7400 gives details of previous rates) For example, couriers have had three different rates since the FRS was introduced. If the rates changed during the middle of an accounting period, then more than one calculation will be required for that specific period.
  • Any refund of VAT already paid by the business may be subject to 4-year capping. Guidance on capping is contained in VAEC - VAT Assessments and Error Correction. Interest under section 78 of VATA 94 will not normally be payable where retrospection is granted.
  • You should ensure that input tax has not been incorrectly factored into the business’s calculation of VAT payable under the FRS. Under the FRS this can only be claimed for a single purchase of capital expenditure goods of more than £2,000 in value (inc. VAT).