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HMRC internal manual

VAT Flat Rate Scheme

Leaving the scheme: Can HMRC allow a business to leave the scheme retrospectively?

Yes. Under Regulation 55M(1)(g) of the VAT Regulations 1995, a business can withdraw from the scheme voluntarily. Regulation 55Q(1)(e) then allows us to agree an earlier (or later) date than the date the business notifies us in writing of its decision to leave the scheme.

When considering requests for retrospective withdrawal, you should take into account the following:

  • Each case should be examined on its own merits and you should consider all of the relevant facts.
  • As with requests for retrospective use of the FRS (FRS3300), the fact that a business would have paid less VAT is not sufficient reason to agree an earlier date of withdrawal from the scheme.
  • You should normally refuse an earlier date where the business has already calculated its VAT liability for the period(s) using the FRS accounting method. This is because the FRS exists to simplify VAT accounting and record keeping, so allowing a business to spend less time on VAT. Allowing a business to withdraw from a retrospective date in these circumstances would undermine the purpose of the scheme.
  • The proper exercise of the power to allow retrospection means that we should be prepared to recognise there may be exceptional circumstances where the policy described in the previous bullet should be set aside. In principle, such cases are likely to involve compassionate circumstances, or the survival of the business, but we have not identified to date any case where such circumstances justify a departure from the normal policy. If you think that that there are such circumstances, the case should be sent via a Technical Advice Request with a clearly outlined recommendation.