VAT: Make Sure You use the Correct Flat Rate Percentage

Making Sense of Changes to VAT Flat Rate Scheme

24 May 2016 13:18

Recently, the Association of Taxation Technicians (ATT) highlighted that HMRC’s practice was costing some traders extra VAT, forcing them to pay more under the flat rate scheme than the law actually required. Thankfully, HMRC have responded with a rewrite of the relevant notice (733), and now reflects the position that businesses should use “ordinary English” in choosing the relevant flat rate category.

The reason for the change is that HMRC previously insisted that all consultants should use the category “management consultants” (with a flat rate of 14%), even if they were consultants in employment, health and safety, tax, etc. Now, such businesses should choose the category “business services not listed elsewhere” (which has a flat rate of 12%).

This may seem immaterial, but a company with turnover of £100,000 gross, this is a VAT saving of £2,000.

Another area that caused confusion was that all engineering consultants should choose the “architect, civil and structural engineering or surveyor” (flat rate: 14.5%). Two recent tax cases confirmed that mechanical engineers are not civil engineers so mechanical engineers could choose the category “business services not listed elsewhere” meaning a saving of 2.5%.

Although there is still some ambiguity within the trade sectors, it is reassuring that HMRC have stated that they will not retrospectively alter a rate you choose if it was reasonable.

If you have any queries, or would like any advice on connection with VAT, don’t hesitate to get in touch.

Want to make sure you aren't making any mistakes when it comes to VAT? Have a look at our VAT services for business to see how you could get everything right.

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