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HMRC Challenge to VAT Flat Rate Scheme

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HMRC challenges percentages used under VAT Flat Rate Scheme

When registering for VAT certain small companies apply to be registered under the VAT Flat Rate Scheme. Under this scheme VAT payable is calculated as a percentage of the gross amount of sales for each VAT period. The percentage used is dependent upon which Flat Rate VAT category the business registers under. HMRC have recently challenged the Flat Rate scheme percentages used for a number of taxpayers, arguing, for example, that a mechanical engineer should be registered under the category of an architect.

The category is of vital importance as, dependent upon which category is chosen, VAT payable can vary from 8% to 14.5% of gross sales. So for a business with £100,000 gross sales, the difference in VAT payable could amount to £6,500 per year.

HMRC lost a recent tribunal case, the conclusion of the tribunal being, in effect, that the VAT registered business should select a VAT Flat Rate Scheme category on a reasonable basis and did not have to follow HMRC's arbitrary basis.

If you are challenged by HMRC on the basis that you are using an incorrect VAT category, we would be pleased to offer you assistance in this matter.

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Tony Shackleford
Tony Shackleford

Chartered Accountant offering support to Limited companies and the self employed.

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