Flat-Rate VAT Scheme Delivers £31k Saving
A corporate client of The VAT People came to us after registering for VAT a number of years prior. Due to issues with their bookkeeping system and a misunderstanding on how they should account for VAT, no returns had been filed during that time.
Instead, the client paid VAT on central assessments issued by HM Revenue & Customs. This led to a growing VAT liability that was identified when the client changed accountants, with their new accountant asking The VAT People to act on behalf of the client.
A meeting with The VAT People’s consultant Tamara Habberley revealed that the client paid suppliers as a disclosed agent on the behalf of their customers, meaning the payments from the customer to the client to pay the supplier did not form part of their turnover, and the client had little in the way of VAT on costs to claim.
As such, if HMRC were to accept the client could use a flat-rate VAT scheme from the date of registration to correct the arrears in VAT, it would create a substantial reduction in their VAT exposure.
Although the client had not applied to use the flat-rate scheme when they registered for VAT, the fact they had omitted to file the returns meant there was a strong argument for them to be allowed retrospective permission to use the scheme.
A successful outcome
Following a lengthy period of negotiation with HMRC, the client was finally allowed to make use of the flat-rate scheme. HMRC accepted that services paid as an agent on behalf of the client's customers did not form part of their turnover.
This action by The VAT People resulted in the VAT arrears owed by the client to HMRC being reduced from over £80,000 to £49,000, a saving of £31,000 in VAT for the client.
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