HRMC are subject to conversation this week, as the request to change the VAT Flat Rate Policy is in motion. Accountancy Network covered the latest developments in todays article.
The ATT (Association of Tax-Technicians) has asked the HMRC to review the VAT flat-rate policy so that business consultants will not be charged too much money as VAT. This came after many first tier tribunal cases went in favor of the taxpayers. The association of tax-technicians gave this recommendation while recognising the fact that the verdicts are not binding to the HMRC. They asked the HMRC to reconsider how it assess the user of its VAT flat rate policy.
Although the program was made with the intention of simplifying VAT accounting for the small businesses, not all businesses have been covered by the few categories that have been offered by the HMRC. At the moment, there are only 51 categories. These categories are used to determine the fraction of gross income that a bossiness is supposed to pay as Value Added Tax on a quarterly basis.
“We strongly feel it is about time for the HMRC to change its guidance to recognise that small business can select the correct categories as required by the law and to make sure that businesses are not paying a lot money much tax”, said ATT president, Mr. Michael Steed.
He added “HMRC should be provide clear an should provide certainty to people who use the scheme to protect them fromfacing the threat of getting unexpected assessments and penalties for back dated VAT which according to them and letter of law should not be due”.
ATT said that there are some business consultants who decide to use the category for businesses that have not been listed elsewhere. This makes the businesses to be subjected to a 12 percent tax rate. However, HMRC new guidance leads to different interpretations. These interpretations are usually contested. In the end, this attracts higher VAT rates.
A member of the VAT technical community, Neil Warren recently said that it was best for the ordinary small business owners to use common every day words to select the category. It should be easy for an advertising consultant not call himself a management consultant. Likewise, a civil engineer should not describe herself as a mechanical engineer. The process that was used by HMRC for a long time was flawed.
According to the HRC guidelines one should select management consultancy if they act as consultant and they are not in the other available categories. This is because the sector is not limited only to the type of businesses that fit into the traditional definition of management consultancy.
The ATT says that HMRC expects that consultants in advertising employment law, health and safety should be described as management consultants. The management consultants are subjected to a 14 percent tax rate.
ATT also pointed out the fact that HMRC expect mechanical engineers to select civil, architect, surveyor or structural engineer category. These categories are subjected to a 14.5 percent tax rate. However, a recent case has suggested that mechanical engineers provide services that are related to plant and machines. This means that they should choose the 12-percent sweep up category.
HMRC has been providing tax assessments on the basis that people made unreasonable choices. This is done with the support of the tribunal courts.