Tax & Admin

Poor HMRC guidance means contractors risk paying wrong rate of VAT

Hannah Wilkinson | 19 April 2016 | 8 years ago

other business services
Management consultants are liable to pay VAT at 14 per cent of revenue, while providers of other business services pay 12 per cent
Following a spate of tribunal rulings against HMRC, The Association of Taxation Technicians (ATT) has called for the tax authority to update its guidance on the categories that determine which flat-rate of VAT should be paid by sole traders.

Recent court cases have found in favour of the owners of niche consultants who selected the other business services? category when registering to pay flat-rate VAT. Consultants in this group are liable to pay sales tax on 12 per cent of gross revenue while those described as management consultants? have to pay a higher 14 per cent rate.

HMRC has also penalised mechanical engineers who tick the other business services? box advising them that they need to pay a flat rate of 14.5 per cent and issuing retrospective tax notices to take account of this.

recent courts cases have clearly confirmed that a business owner should use ordinary everyday words in choosing their category. In continuing to go against the courts views, HMRC’s thought process is flawed, said ATT VAT expert Neil Warren.

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.

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, added ATT president Michael Steed.

The current HMRC guidance for selecting a flat rate advises business owners: The descriptions of the sectors are not technical and use ordinary English. So if there is a match or a close fit, use that sector.

The controversy follows hot on the heels of the removal of travel and subsistence expense tax deductions for freelancers working under umbrella companies. The Association of Independent Professionals and the Self Employed (IPSE) warned that the policy which came into effect on 6 April 2016 could drive 45, 000 freelancers out of business.

It is the latest in a spate of grievances levelled against the tax man, recently criticised for not picking up the phone, forcing digital tax on small firms and mistakenly demanding tens of thousands of pounds from suspected tax avoiders.

Have you had enough of freelancing in the UK? Why not check out one of these idyllic co-working spaces in sunnier climes.

Related Topics

Financial Planning for Small Business Owners
11 September 2023

Financial Planning for Small Business Owners

Read More →
Embracing Sustainability: Eco-Friendly Practices for Businesses
1 September 2023

Embracing Sustainability: Eco-Friendly Practices for Businesses

Read More →
Maximising Productivity: Time Management Hacks for Entrepreneurs
16 August 2023

Maximising Productivity: Time Management Hacks for Entrepreneurs

Read More →
What is Debt Financing?
14 August 2023

What is Debt Financing?

Read More →
What is Straight Line Depreciation and Why is it Important?
11 August 2023

What is Straight Line Depreciation and Why is it Important?

Read More →
Which Employee Benefits Are Tax Free?
10 August 2023

Which Employee Benefits Are Tax Free?

Read More →

If you enjoy reading our articles,
why not sign up for our newsletter?

We commit to just delivering high-quality material that is specially crafted for our audience.

Join Our Newsletter