Q. I have been on the VAT flat rate scheme for several years. I have two business activities that fall into different categories with differing FRS percentages. I have apportioned VAT between the rates, but a chance conversation with a friend leads me to believe this is incorrect. What do I need to do?
A: Under the flat rate scheme (FRS), you should not apportion VAT where you have multiple activities. Instead, you should use the FRS percentage that corresponds to the activity with the greater percentage of turnover.
As an example, consider a firm that offers property management services (current VAT flat rate 12%) and also provides financial services (current VAT flat rate 13.5%). If the turnover from the property management activities exceeds that from financial services work, they would use 12%.
To rectify the situation with HRMC you will need to go back and correct your calculations for the last four years. This might result in an additional liability or a refund depending on the circumstances. If the net error is less than £10,000 you can include it on your next VAT return, otherwise you will need to make a standalone disclosure to HMRC using form VAT 652.
The VAT flat rate percentages for a range of business types can be found on the gov.uk site here.
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