25 Sep
Can my VAT group use the Flat Rate Scheme?

Q. I have two small businesses which are treated as a group for VAT purposes, so we only submit a single VAT return covering both entities. Are we eligible to use the Flat Rate Scheme? 

A. Unfortunately not. If you are part of a VAT group, or are eligible to join an existing VAT group, then you cannot use the Flat Rate Scheme (FRS).

There is also a rule which stops 'associated' businesses joining the FRS. 

A business is 'associated' with another business if:

- one business is under the dominant influence of another;
- two businesses are closely bound by financial, economic and organisational links; or
- another company has the right to give directions;
- in practice, a company habitually complies with the directions of another. The test here is a test of the commercial reality rather than of the legal form.

If a business has been associated in this way with another in the last two years, but is not associated at the time an application to use the FRS is made, HMRC may allow the FRS to be used, if they agree in writing, that the former association is not a risk to the revenue. 

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