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HMRC internal manual

VAT Flat Rate Scheme

Treatment of Applications: If you decide to disallow retrospection

If you have decided to refuse retrospection, then you should tell the business in writing. The letter should state clearly the main facts which you took into account and give reasons for refusing retrospection.

The case of C J Anderson (LON/2006/0826) demonstrates the importance of stating clearly the reasons why retrospection has been refused. In this case the business appealed under S 83 (fza) VATA 94 against a decision refusing authorisation to use the FRS for past periods. The VAT and Duties tribunal decided that the Commissioners’ decision to refuse such authorisation was unreasonable.

However, under 84(4za) VATA 94, a tribunal’s power extends only to reviewing the reasonableness of HMRC’s decision and not to substituting its own decision. This meant that HMRC had to make a fresh decision. In the light of the Tribunal’s comments that the refusal letter did not adequately set out the reasons for refusing restrospection, together with the lack of clarity about retrospection policy in previous versions of this guidance, the Commissioners decided, exceptionally, to allow retrospection.