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HMRC Urged to Adjust Guidance Said to Be Costing Small Businesses Extra VAT

Written by: Keith Tully

Published: 22nd April 2016

Signing paperHM Revenue & Customs (HMRC) is being urged to make changes to guidance relating to its flat rate VAT schemes for small and medium-sized enterprises (SMEs).

According to the Association of Taxation Technicians (ATT), aspects of the current approach being taken by the UK’s main tax-gathering body when it comes to advising SMEs on VAT issues are flawed and ought to be changed.

The call from the organisation comes in the wake of several legal tribunals relating to VAT issues that have seen judgements made in favour of SMEs and against HMRC.

ATT’s contention is that too many businesses that provide consulting services of various sorts are being categorised by HMRC as providers of “management consultancy” services when they come to administer their VAT affairs.

The association says that this categorisation is leaving a growing number of companies that provide consultancy services completely unrelated to management issues being charged VAT at a higher rate than ought to be the case.

The problem is apparently that HMRC’s flat rate VAT categorisation process is currently too rigid and therefore unfair on companies whose experts advise on issues such as advertising or health and safety.

HMRC guidance on the matter currently instructs consultants to “choose management consultancy” as their VAT category if they “do not fit into another category”, which critics including ATT are now suggesting needs to be revised in the interests of both fairness and accuracy.

“Recent courts cases have clearly confirmed that a business owner should use ordinary everyday words in choosing their category,” said Neil Warren from ATT in a recent statement.

“We feel it is the right time for HMRC to amend its guidance to accept that honest small business owners have adopted the correct category as intended by the legislation and to ensure people are not paying too much tax,” added ATT president Michael Steed.

“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.”

Keith Tully

Keith Tully

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Keith has been involved in Business Rescue since 1992, during which time he’s worked for both independent and national firms. His specialties include company restructuring matters and negotiating with HMRC on his clients behalf.

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