Leaving the VAT Flat Rate scheme is simple to do but there are implications for VAT reporting upon changing VAT schemes as well as some time sensitive issues to consider.

When Can You Leave the VAT Flat Rate Scheme?

You can voluntarily choose to leave the Flat Rate Scheme at any time for example, if you discover that:

  • being part of the scheme is no longer beneficial to you;
  • you stop trading;
  • your turnover falls below the VAT registration threshold.

You may also find yourself ineligible to be part of the Flat Rate Scheme due to changes in your business, for example:

  1. At the anniversary of your start date, your total income including VAT in the previous year is more than £230,000 (if you use cash reporting, then this will be the total amount you were paid if not, it is the total value of invoices you have raised);
  2. You believe that the total value of your income for the next 30 days alone will be more than £230,000 (excluding sales of capital assets);
  3. Changes in trade mean you now need to operate under a different VAT scheme such as tour operator, auctioneer or second hand goods scheme.

What Date Should You Leave the VAT Flat Rate Scheme?

If you are voluntarily leaving the Flat Rate Scheme, then you can choose the most appropriate date that suits you. However, it may make sense to make this match the end of a VAT quarter to make your reporting easier.

If you have found yourself ineligible then HMRC sets out guidance which you must follow to determine your official leaving date. If you find yourself in one of the three scenarios above, then this is leaving date you need to apply for:

  1. If you send quarterly VAT returns, the end of the VAT period containing your joining anniversary.  Or if you send in annual VAT returns, your leaving date will be the end of the month after the month containing your FRS anniversary, or the end of your current annual VAT period, whichever comes first;
  2. the beginning of the period of 30 days;
  3. the date you became a tour operator or the beginning of the VAT period in which you decide to use the new scheme.

How Do You Tell HMRC You Need to Leave the VAT Flat Rate Scheme?

You need to write to HMRC to advise them that you wish to leave the VAT Flat Rate Scheme, the date you need to leave as well as a short explanation as to why and how you will continue to report your VAT to HMRC.  You then need to post or email your letter to:

HM Revenue and Customs – National Registration Unit 
Imperial House 
77 Victoria Street 
Grimsby 
DN31 1DB 

FRSapplications.vrs@hmrc.gsi.gov.uk

Enter your email address below to receive a template letter which you can edit and send to HMRC to advise them that you are leaving the VAT Flat Rate Scheme.

Your Final VAT Return on Leaving the Flat Rate Scheme

Cash Accounting

If you use cash accounting, then you must include output tax as you would under the flat rate scheme up until the date that you leave the scheme.  So you include output tax on any cash sales you have collected in your VAT period as normal, then moving forward you must account for any future cash collections under the rules of your new VAT scheme.

Invoice Accounting

If you include output tax on your VAT return according to when you raise invoices then you include all the invoices you have raised up to the point where you leave the flat rate scheme, using your flat rate percentage.  Then you include your invoices on your future returns, according to the invoice date as you did previously but using the applicable percentage as set out in the rules of your new scheme.

Note: if you leave the Flat Rate Scheme in the middle of a VAT return period then you will need to do two calculations for your old scheme and new scheme, add them together and disclose this figure on you VAT return.

VAT Flat Rate Scheme: Claiming VAT on Stock When Leaving the Flat Rate Scheme

Anita is a Chartered Accountant, turned blogger and creator of the ever popular free Go Self Employed Email Mini Course, which has been completed by hundreds of attendees all over the UK. Using her 10 years experience in accounting, tax and operations for Small Businesses, Anita is on a mission to make finance simple for the self employed, so they can stop stressing about tax & finances and focus on building profitable businesses which will give them the lifestyle they dream of.