Has HMRC overcharged your small business on VAT?

Flaws in HMRC’s flat rate scheme guidance have resulted in SME owners being overcharged, according to the Association of Taxation Technicians (ATT).

The taxman has been asked to ‘look again’ at the VAT assessments of those using the flat rate scheme, following several instances of VAT tribunals ruling against HMRC.

Why might you have been overcharged on VAT?

Originally designed as a means of simplifying VAT accounting for SME owners who are required to choose their own tax category, the flat rate scheme denotes the percentage of gross business income to be paid as VAT on quarterly returns.

HMRC have denoted 51 specific business sectors that are covered by the scheme. However, the ATT claim that this is not sufficient to cover all business types, and that SME owners from sectors that are not covered should select the default ‘other business services not listed elsewhere’ category, which has a 12% tax rate.

Despite this, HMRC’s existing guidance states that SME owners should try to categorise themselves within a related sector. The following example is provided:

“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”

Management consultants are required to pay a higher rate of 14%.

What can you do about it?

By making your financial records accessible in real-time to an experienced SME accountant using intuitive software such as Xero, you can keep the element of convenience, while also achieving complete accuracy in your accounting records.

Want more expert accountancy advice for SME owners, contact the experts at 3 Wise Bears today.