Retrospective flat rate scheme

The taxpayer registered for VAT as a management consultant on 2 January 2007 but did not apply to join the flat rate scheme (FRS) because he expected the value of his taxable sales in the next 12 months to exceed the scheme limit of £150 000 (VAT exclusive).

But his optimism was unjustified: his highest annual turnover in the first five years of trading was £49 000.

He deregistered on 31 December 2011 and at the same time requested that he be allowed to join the FRS retrospectively to 2007 and then recalculate his VAT liability.

He claimed the dramatic decline in his business turnover after the financial crisis of 2008 was an “exceptional circumstance” which meant he should be allowed to join the scheme.

The net tax saving in the five-year period would be £2 151 under FRS compared to normal VAT accounting. HMRC refused...