20 June 2014
A recent First-tier Tribunal hearing finds HMRC’s Flat Rate Scheme decision was wrong.
When Neil Harris started his mechanical engineering business, he applied for the VAT Flat Rate Scheme (FRS), but none of the categories seemed to quite cover the activities of his business. In consultation with his accountant, he plumped for the category ‘Any other activity not listed elsewhere,’ which gave an FRS rate of 12%. Three years later his business was the subject of a visit from the VATman and it was alleged that the business was using the wrong FRS rate and should have been in the category ‘Architect, civil and structural engineer or surveyor’ and using the rate of 14.5%. Clearly Neil’s mechanical engineering business was none of these, but HMRC cited their FRS guidance leaflet that put ‘engineering consultants and designers’ in that category. HMRC then demanded VAT arrears of just under £9,000 plus a penalty of 35%. The penalty was reduced to 15%, but the VAT demand remained, so the appeal process resulted in a tribunal hearing.
The case was taken by Neil Harris’s accountant’s fees protection provider, Wolters Kluwer, as cover was in place. It was established that HMRC’s guidance leaflet had no legal standing and the tribunal found in favour of the taxpayer. So Neil Harris was able to employ an experienced VAT advisor, which resulted in the removal of an unwelcome tax bill from his business and he didn’t have to pay for the pleasure.
It pays to use advisors who can offer ways of covering fees arising from HMRC interventions, enabling taxpayers to be defended to the hilt. If you would like to hear of how we can help you deal with any VAT problems, contact John Sheehan on 01462 687333 or email firstname.lastname@example.org.