Flat Rate Sector

16th June 2016

Contractors: Don’t pay too much flat rate VAT.
Just three weeks ago it was reported that the VAT flat rate scheme guidance was flawed. The ATT had highlighted that HMRC’s practice was costing traders, as they were forced to pay more VAT to HMRC under the flat rate scheme than the law required. HMRC has now responded with a welcome rewrite of VAT Notice 733: Flat rate scheme for small businesses. This notice now reflects comments made by judges in tax tribunal cases that businesses should ‘use ordinary English’ in choosing the flat rate trade category.

HMRC previously insisted that all consultants should chose the category ‘management consultants’ (flat rate: 14%), even if they were consultants in health and safety, employment, or marketing. Now those businesses who do not describe themselves as management consultants are free to choose the category ‘business services not listed elsewhere’ (flat rate:12%). Another area that caused confusion was the advice in para 4.4 of the previous version of VAT Notice 733, that all engineering consultants and designers should choose the category for ‘architect, civil and structural engineer or surveyor’ (flat rate 14.5%). The first tier tribunal cases: SLL Subsea Engineering Ltd (TC4256) and Idess Ltd (TC3638) found that mechanical engineers were not civil engineers, so mechanical engineers could choose the category ‘business services not listed elsewhere’ (flat rate 12%). That advice has been removed from the new version of VAT Notice 733.

The starting point for any business adopting the VAT flat rate scheme for the first time is to refer to the list of categories in the 1995 VAT Regulations, SI1995/2518, Reg 55K, in order to choose its trade category. In areas of doubt (e.g. where there is no specific category for the business description), HMRC offers assistance in the flat rate scheme manual at FRS7200 and FRS7300, which now reflect the recent court cases. It is also reassuring to read that Notice 733 confirms: “HMRC will not change your choice of sector retrospectively as long as your choice was reasonable. It will be sensible to keep a record of why you chose your sector in case you need to show HMRC that your choice was reasonable”.

Related Services

Value Added Tax Tax Planning


 
Other items in Blogs
 
Jaimie King
13th June 2019 Charity fundraiser flies high for the Air Ambulance

                        On 8th May, friends and colleagues got together for a Paint Night in aid of East Anglian Air Ambulance. Rosey Hancock, a local artist, taught the class step-by-step how to paint a wonderful lion on canvas. All attendees thoroughly enjoyed the event and…

Read More »

Ruth Pearson
10th June 2019 Employee vehicles: Mileage Allowance Payments (MAPs)

MAPs are what you pay your employees for using their own vehicle for business journeys. You can pay your employees an approved amount of MAPs each year without having to report them to HMRC. To work out the approved amount, multiply your employee’s business travel miles for the year by the rate per mile for…

Read More »

Scott Butcher
7th June 2019 Making Tax Digital – when you need to sign up and what you’ll need

We are now two months past the start date of the 1st April 2019 for Making Tax Digital for VAT and into the last month of what will be some businesses first VAT quarter under Making Tax Digital. Some businesses may not be aware that even though they may be on MTD compliant software that…

Read More »

Jaimie King
7th June 2019 Digitalising stocktaking

As the world becomes more digital, it leaves us wondering where further efficiencies could be achieved through switching to more high-tech methods. One possible area for auditors is stocktaking. For an audited entity with significant levels of stock at the year end, it is likely the auditor will want to perform test counts of the…

Read More »

Jonathan Moore
6th June 2019 Don’t take record keeping for granted

It is common for entities who undertake research and development to receive grant funding for projects that they undertake. Grants will often be paid on the basis of expenditure incurred or a proportion thereon and may be awarded with certain conditions attached.   One such condition for grants above a certain level will be the…

Read More »

Ruth Pearson
30th May 2019 Company Cars : Advisory Fuel Rates (AFRs)

Use AFR’s to work out mileage costs if you provide company cars to your employees. These rates apply from 1 June 2019.   Advisory fuel rates from 1 June 2019 Engine size Petrol  LPG – amount per mile 1400cc or less 12p 8p 1401cc to 2000cc 15p 9p Over 2000cc 22p 14p   Engine size…

Read More »