Commentary

V2.199B Flat rate scheme for small businesses—eligibility and application

Part V2 Registration – deregistration

V2.199B Flat rate scheme for small businesses—eligibility and application

V2.199B Flat rate scheme for small businesses—eligibility and application

Overview of the flat-rate scheme for small businesses

EU basis for the flat rate scheme

Directive 2006/112/EC, art 2811 provides that 'Member States which might encounter difficulties in applying the normal VAT arrangements to small enterprises, by reason of the activities or structure of such enterprises, may, subject to such conditions and limits as they may set, and after consulting the VAT Committee, apply simplified procedures, such as flat-rate schemes, for charging and collecting VAT provided that they do not lead to a reduction thereof'.

The ECJ held, in the case of EC v Republic of Austria2, that such a scheme may not equate to an exemption. In that case, certain businesses were entitled to recover 10% of their turnover as input tax; since the rate of output tax on the supplies in question was also 10%, the effect was that no VAT was due. The ECJ held:

'Article 24(1) of the Sixth Directive provides that Member States have the option “of applying simplified procedures such as flat-rate schemes for charging and collecting the tax”. The wording of the provision does not show that they may exempt small undertakings totally from their obligation to pay VAT, since it permits the charging procedures merely to be simplified and makes no mention of any possibility of exempting the undertaking concerned entirely from VAT. Moreover, in the case of an exemption such as that laid down by the regulation of the Finance Minister, moreover, the VAT

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