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HMRC internal manual

VAT Flat Rate Scheme

Leaving the scheme: Can HMRC withdraw use of the Flat Rate Scheme?

Yes. Regulation 55P of VAT Regulations 1995 provides a power to refuse or withdraw use of the scheme for the protection of the revenue, or if the FRS user (or someone on his behalf) made a false statement in relation to his application.

The power to withdraw use of the scheme for the protection of revenue has been interpreted widely by the Courts in other contexts and, provided you use it reasonably and record the reasons for your judgement, you should not be afraid to use it robustly where avoidance, abuse or unfair advantage is present. Further guidance on the interpretation of “protection of the revenue” can be found in VRS2365.

The Commissioners may terminate use of the scheme from any time including from a retrospective date. As with any discretion, the power to terminate use of the scheme retrospectively should be used reasonably and with regard to the effect on the business. Representations against a local decision should be discussed with the policy team responsible for FRS.