Flat rate VAT on revenue earned before registration?

[Oliver Austin]

I've been trading i.e. providing consultancy services to a single client) for about 6 months but I have not invoiced and therefore have not received any revenue because I've been trying to register for flat rate VAT. In my situation it offers a reasonable uplift as my VAT rated expenditure is low. Skip the next bit to get to the question.

Firstly, I delayed registering for VAT because the HMRC pages said I needed a bank account (this proved to be incorrect), getting an account to ages. When I registered I didn't spot that I could apply for the FRS at the same time. Then, maybe a month later I applied for FRS but put down a very best case annual revenue prediction that was greater then £150K but less than £230k. The application was rejected and I provided a new, more realistic, turnover <£150K but by email, my mistake, I waited but no reply and called HMRC who informed me I needed to re-apply which I did. Now today, I've just received two letters from HMRC, one rejecting my application because my projected turnover >£150K - it isn't - and the other asking to know the FRS trade sector and associated percentage. I've contacted HMRC who can't help over the phone and told me to write letter.

Question:
The client owes approx £60K and I'd feel much more comfortable that being in my Ltd's bank account but have been waiting to invoice until I'm registered on the Flat Rate Scheme. I've just submitted a nil VAT return and the next one is due 7th September. Does that mean I can invoice now and receive the money and pay flat rate VAT on it providing I get accepted on the flat rate scheme before the 7th September please?

Thanks Oliver

 

[Bobbo]

How low is your VAT rated expenditure? Are you aware of the limited cost trader rules? If you fail these you won't be getting the "reasonable uplift" you're expecting.

Out of interest, how do you intend for your limited company to receive money from your customer if it doesn't have a bank account?

When you can use the flat rate from will more relate to the underlying VAT quarter, rather than the due date of the return. I.e. 7 September means a May - July quarter. When did your (second - the one not rejected) application to FRS go in?

 

[Oliver Austin]

"How low is your VAT rated expenditure? Are you aware of the limited cost trader rules? If you fail these you won't be getting the "reasonable uplift" you're expecting."
Ah bugger - that's new rule since I was last a company director. I'd be hit by this. Does the 1% "discount" on the first year of FRS apply so it would be 15.5% rather than 16.5% because if not then this isn't worth doing.

"Out of interest, how do you intend for your limited company to receive money from your customer if it doesn't have a bank account?"
I've got one - just took ages to sort it out as the bank, Natwest, were being a but over-cautious.

"When you can use the flat rate from will more relate to the underlying VAT quarter, rather than the due date of the return. I.e. 7 September means a May - July quarter. When did your (second - the one not rejected) application to FRS go in?"
The second one appears to have been both rejected but also not rejected and they're asking for more info!! I submitted it on May 5th 2025

 

[Newchodge]

Why do you want to be VAT registered before you submit your invoice to your client?

 

[Oliver Austin]

Why do you want to be VAT registered before you submit your invoice to your client?

I'm already VAT registered. Your question is kind of the crux of mine. If I want to pay VAT to HMRC under the FRS then do I have to wait until I'm accepted to the scheme before I invoice?

 

[Oliver Austin]

"How low is your VAT rated expenditure? Are you aware of the limited cost trader rules? If you fail these you won't be getting the "reasonable uplift" you're expecting."
Ah bugger - that's new rule since I was last a company director. I'd be hit by this. Does the 1% "discount" on the first year of FRS apply so it would be 15.5% rather than 16.5% because if not then this isn't worth doing.

I can answer my own question here - yes the 1% discount does apply so we're talking £880 on £60K - still worth doing.

 

[UK Contractor Accountant]

I'm already VAT registered. Your question is kind of the crux of mine. If I want to pay VAT to HMRC under the FRS then do I have to wait until I'm accepted to the scheme before I invoice?

If you apply using form VAT600FRS near the time you registered for VAT, you can start using the scheme from the date you registered for VAT. Try not to delay your application if you wish to use the scheme from your date of registration.

 

[Gecko001]

You originally submitted a predicted turnover of over £150k. Do you really think that HMRC will accept a figure of less than £150k now?

 

[Oliver Austin]

You originally submitted a predicted turnover of over £150k. Do you really think that HMRC will accept a figure of less than £150k now?

Why wouldn't they? In my second application I explained that the turnover I'd provided was a maximum and the reality was likely to be far less. This is actually what's panning out too as I have no contract(s) to provide services beyond June.

 

[Oliver Austin]

If you apply using form VAT600FRS near the time you registered for VAT, you can start using the scheme from the date you registered for VAT. Try not to delay your application if you wish to use the scheme from your date of registration.

My registration for VAT was 17th Jan 2025. I have applied twice. Does the data you are accepted to the FRS (which could be backdated) mean any revenue before that date can't be included in the FRS?

 

[UK Contractor Accountant]

My registration for VAT was 17th Jan 2025. I have applied twice. Does the data you are accepted to the FRS (which could be backdated) mean any revenue before that date can't be included in the FRS?

You can back-date the FRS Registration to an earlier date but if you have already submitted vat returns you can only go back to the start of the period following the last vat return quarter filed.

In your case I would argue that FRS was to apply from vat registration date albeit the application was 1 month late due to misunderstanding that you couldnt apply for the FRS at the same time as applying for vat registration.

The VAT Returns already submitted were nil Returns?

 

[Oliver Austin]

You can back-date the FRS Registration to an earlier date but if you have already submitted vat returns you can only go back to the start of the period following the last vat return quarter filed.

In your case I would argue that FRS was to apply from vat registration date albeit the application was 1 month late due to misunderstanding that you couldnt apply for the FRS at the same time as applying for vat registration.

The VAT Returns already submitted were nil Returns?

My Ltd has not had any income so the single VAT return on Jun 7th was nil (actually I was a few days late -oops). I don't need them to backdate it to 17th Jan but I'd like to invoice soon as £60k not being in my account makes me uneasy. Hopefully by the 7th of September when the next VAT return is due the whole FRS registration will be sorted and I can apply that to the £60k.

 

[Gecko001]

Why wouldn't they? In my second application I explained that the turnover I'd provided was a maximum and the reality was likely to be far less. This is actually what's panning out too as I have no contract(s) to provide services beyond June.

Surely HMRC will go by the maximum figure you provided to them. You are dealing with civil servants who will always play it safe from their point of view.

 

[Ziggy2024]

I would advise you to review your thought process on this.

You have deliberately deprived yourself of £60k for 6 months just to make a profit of a few hundred pounds. Is that small benefit really worth it?

 

[DWS]

I would advise you to review your thought process on this.

You have deliberately deprived yourself of £60k for 6 months just to make a profit of a few hundred pounds. Is that small benefit really worth it?

Agree with Ziggy, also when you consider that the £880 difference is also taxable and you have lost the ability to claim any input tax on goods and services since registration.

 

[GLAbusiness]

Agree with Ziggy, also when you consider that the £880 difference is also taxable and you have lost the ability to claim any input tax on goods and services since registration.

Me too

 

[UK Contractor Accountant]

I would advise you to review your thought process on this.

You have deliberately deprived yourself of £60k for 6 months just to make a profit of a few hundred pounds. Is that small benefit really worth it?

His thought process for the 6 months was on the assumption that the benefit of the FRS scheme would be £2K ish. Then reality hit when it was pointed out on here Post #2 that the Limited Cost Trader rules probably applies.

 

[Ziggy2024]

His thought process for the 6 months was on the assumption that the benefit of the FRS scheme would be £2K ish. Then reality hit when it was pointed out on here Post #2 that the Limited Cost Trader rules probably applies.

And in post #6:

I can answer my own question here - yes the 1% discount does apply so we're talking £880 on £60K - still worth doing.

Hence my comment.

 

[Oliver Austin]

Sorry I missed the notifications for replies here.
Is £880 minus tax worth it. In my opinion yes. Not having the £60K has lost out on some bank interest though but I never expected it to take so long.
Bit confused why you think £880 - so probably about £500 in my pocket isn't worth filling in a few forms or writing a few letters? There have been no input VAT taxes to (re)claim.
Yup you're right I thought it was going to be a lot more - but hey ho - I'm on the journey now.

Please can anyone fully answer the original question though?

"...can I invoice now and receive the money and pay flat rate VAT on it providing I get accepted on the flat rate scheme before the 7th September please?"

Thanks Oliver

 

[Ziggy2024]

Sorry I missed the notifications for replies here.
Is £880 minus tax worth it. In my opinion yes. Not having the £60K has lost out on some bank interest though but I never expected it to take so long.
Bit confused why you think £880 - so probably about £500 in my pocket isn't worth filling in a few forms or writing a few letters? There have been no input VAT taxes to (re)claim.
Yup you're right I thought it was going to be a lot more - but hey ho - I'm on the journey now.

It's not about the forms or the letters. It's having the cash in your pocket. What happens if your customer disputes the invoice or refuses to pay for another 3 months? What if they go bust?
Delaying invoicing is just not sensible IMO.

Please can anyone fully answer the original question though?

"...can I invoice now and receive the money and pay flat rate VAT on it providing I get accepted on the flat rate scheme before the 7th September please?"

Thanks Oliver

I think the question has been answered but for the avoidance of doubt it depends on the date that HMRC agree you can use the flat rate scheme. As your application has been rejected you should use the standard scheme (or cash) until HMRC advise you otherwise.

 

[GLAbusiness]

I'm with Ziggy here.

OP seems to be letting the VAT rules run the business strategy instead of operating the business in the best interests of the business.

There is no way I would let a customer owe me £60k and not invoice for it. I have a contract with a client which specifies that I must invoice within 28 days of the end of the month.

OP's customer now knows that OP does not care about the payment timescales.

Just seem like a very bad business strategy.

 

[DWS]

Sorry I missed the notifications for replies here.
Is £880 minus tax worth it. In my opinion yes. Not having the £60K has lost out on some bank interest though but I never expected it to take so long.
Bit confused why you think £880 - so probably about £500 in my pocket isn't worth filling in a few forms or writing a few letters? There have been no input VAT taxes to (re)claim.
Yup you're right I thought it was going to be a lot more - but hey ho - I'm on the journey now.

Please can anyone fully answer the original question though?

"...can I invoice now and receive the money and pay flat rate VAT on it providing I get accepted on the flat rate scheme before the 7th September please?"

Thanks Oliver

No one can answer that as it is now a query between you and HMRC.
I have had in the past not received confirmation from HMRC regarding a clients FRS application, but I submitted the application myself and knew it would not be declined so used the FRS anyway with the back up of emails I sent.
Your situation is different, first of all you say you didn’t spot you could apply for FRS with the VAT application which is strange seeing as you are specifically asked if you wish to apply for the scheme, then you apply for the scheme but put turnover above £150k which makes you ineligible, then you reapply saying your turnover is under £150k just to join the scheme, surely you can see HMRC’s scepticism with your application?

 

[Oliver Austin]

No one can answer that as it is now a query between you and HMRC.
I have had in the past not received confirmation from HMRC regarding a clients FRS application, but I submitted the application myself and knew it would not be declined so used the FRS anyway with the back up of emails I sent.
Your situation is different, first of all you say you didn’t spot you could apply for FRS with the VAT application which is strange seeing as you are specifically asked if you wish to apply for the scheme, then you apply for the scheme but put turnover above £150k which makes you ineligible, then you reapply saying your turnover is under £150k just to join the scheme, surely you can see HMRC’s scepticism with your application?

If it's obvious how to apply for FRS when registering for VAT then I must have been having a really rough day because I didn't spot it. HMRC may well be skeptical but facts are facts - my turnover is likely to be about £90k tops. I was just being very optimistic when I filled in the form.