SME OWNERS are being overcharged VAT due to flaws in HMRC’s guidance over its flat rate scheme, and should act quickly to remedy the situation, the ATT has claimed.
Several VAT tribunals, which have been ruled against the taxman, prompted the association to urge HMRC to ‘look again’ at VAT assessments of users of its flat rate scheme.
The flat rate scheme was designed to simplify VAT accounting for micro businesses who are responsible for choosing their own category based on legislation. It then determines the percentage of their gross business income that they will pay as VAT on their quarterly returns.
The ATT said that not all business sectors are covered by the 51 scheme categories provided by HMRC, so some SME owners choose the default ‘other business services not listed elsewhere’ category, which carries a 12% rate of tax.
However, according to HMRC’s current guidance, SME owners should make an effort to categorise themselves, citing a specific example: “If you act as a consultant and you do not fit into another specific sector, you should choose management consultancy. This sector is not restricted to businesses that fit the traditional idea of management consultancy”. The rate for management consultants is a higher rate of 14%
Michael Steed, ATT president said that ‘the time is right’ for HMRC to amend its guidance and accept that SME owners chose the correct category for their profession and are paying the right amount of tax.
“Furthermore, HMRC must provide clarity and certainty to scheme users that they will not be faced with the threat of receiving unexpected assessments or penalties for back-dated VAT that, according to the letter of the law, should not be due,” explained Steed.
Colin McClatchie joins Robert Black, Rhona Brankin and Dame Lin Homer as a public interest member on the ICAS council
The ATT had previously expressed concern that the legislation was overly complex and created unnecessary complications within the practical working of the new allowances
Introduced in 2013 to encourage R&D investment, the scheme allows UK businesses to pay only 10% corporation tax on profits derived from any UK or certain EU patents
Yet, KPMG’s annual survey shows that the UK is still an attractive place to do business, despite falling in rankings in tax competitiveness and FDI appeal