VQOTW: Changing Entity on the Flat Rate Scheme

My client set up a gift shop as a sole proprietor and joined the Flat Rate Scheme.  During her second year of trading, she incorporated the business and took over the same VAT number, continuing to use the Scheme.  I note that the date used for reviewing turnover, and also for reviewing the trade category if necessary, is the anniversary of joining the scheme.  The date she initially joined the scheme as a sole proprietor is different from the date the new company took over.  The question here is what happens to the anniversary?  Which should she use?  Is it the original anniversary, or the date of registration/joining the scheme in the new entity?

Although with a VAT68 there is legally a new VAT registration, albeit, with the previous entity’s VAT number, HMRC’s manual reference FRS4500 states that where there is a transfer of a going concern (TOGC) with a VAT68, FRS treatment will continue unless the transferee requests otherwise. This implies that the original joining date remains the anniversary, and this is what we would advise, subject to the acknowledgment letter sent by HMRC not saying anything to the contrary.

We are often asked about the 1% discount in where there is a change of entity.  This specific point is not addressed in the manuals, but Notice 733 states in paragraph 4.7 that ‘If your business is a transfer of a going concern you will be entitled to apply the 1% reduction from the date of the transfer.’  As the Notice makes no distinction between a TOGC from an unconnected party, and a change of entity, and no distinction between a TOGC with a new VAT number and one with a reallocated number it would be reasonable to draw the conclusion that HMRC’s policy is to allow the reduction in all cases.

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Senior VAT Consultant
0844 892 2470

Viv has worked in VAT since 1989, when she joined HMRC as an Assurance Officer. Before joining the team as a consultant in 2000, she had spent five years dealing with written and telephone enquiries at a local VAT office.

In 2007/ 2008, she spent a year with a major accountancy firm gaining experience of VAT from a different perspective and developing skills which are relevant to her current role.

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