Client portal changes

The Flat Rate Scheme was designed to simplify the recording of sales and purchases and allows a business to apply a fixed flat-rate percentage to gross turnover to arrive at the VAT due.

The ATT have recently highlighted that HMRC’s practice was costing traders, as they were forced to pay more VAT to HMRC under the flat rate scheme than the law required.  The change means that some businesses previously classified as ‘management consultants’ (flat rate of 14%) in the broadest of context, who feel they are not ‘management consultants’ are free to choose the category ‘business services not listed elsewhere’ (flat rate of 12%).

This will also apply for many ‘engineering consultants and designers’ who were advised that they should choose the category ‘architect, civil and structural engineer or surveyor (flat rate of 14.5%) as these businesses will also be free to change their category to ‘business services not listed elsewhere’ (flat rate of 12%).

The change follows several recent Tribunal cases where appeals have been successful and applies mostly to types of engineers or consultants who do not have specific categories in the Flat Rate Scheme.

HMRC are now allowing retrospective changes to the trade sector percentage where businesses believe that they have overpaid VAT on the Flat Rate Scheme by being on a higher percentage than necessary businesses can apply for a refund covering VAT overpaid in the last 4 years.

Not everyone will qualify for a refund and not all applications will be successful.   However typical refunds are estimated to be in the region of £10k for businesses assuming 4 years retrospection.  Each case will be dealt with on its merits so refunds will vary.

If you feel that this change may have an impact on your business and would like to speak with one of VAT specialists within the business, please get in touch with your local Baldwins contact or email alternatively call 0845 894 8966.