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HMRC internal manual

VAT Flat Rate Scheme

Flat Rate Scheme Guidance: Trade Sectors: Reduction during the first year of VAT registration

Under Regulation 55JB(1) VAT Regulations 1995, businesses that are in their first year of registration receive a 1% reduction to their flat rate. This reduction applies from the date a business joins the scheme, until the first anniversary of it becoming VAT registered.

It follows that if a business joins the scheme later than the date it registered for VAT, it will not be entitled to benefit from the reduction for a full year - or any reduction at all. Notice 733 gives an example of how this rule works in practice.

Under Regulation 55JB(2), the business is not entitled to any reduction if:

  • the Commissioners received notification of, or otherwise became fully aware of, his liability to be registered more than one year after his EDR.

This means that where a business informs us, or we find that it should have been registered, more than one year after its EDR, it will not qualify for any reduction in flat rate.