Flat Rate VAT percentage problems | AccountingWEB

Flat Rate VAT percentage problems


We have a number of clients who are railway maintenance engineers (they purchase no materials and are labour only).  They are insisting that their flat rate vat percentage should be 8.5% under the category 'Vehicle Repairs'.


We have advised the it should be 12% under the category 'Any other business elsewhere'


HMRC are non committal and wont confirm either way. 


Has anyone got any ideas? 


Tonykelly's picture

these people are story-tellers    1 thanks

Tonykelly | | Permalink

So I would put them under enterainment/journalism 12.5%.

Don't forget they will get a 1% discount in first year, so 11.5%.


sally1964's picture

Why not 14.5%    1 thanks

sally1964 | | Permalink

I agree with you that it should be either 'any other business' but might it not be 14.5%

'Labour-only building or construction services' means building or construction services where the value of materials supplied is less than 10 per cent of relevant turnover from such services; any other building or construction services are 'general building or construction services' 


If they are insistent that it shoudl 8.5% I would write to them and state that you beleive it should be 12% and why. State that you can not be held responsible for errors. interest and penalties if they apply the 8.5%.

If you say HM are non committal - do you mean on the helpline? If so I woudl recommend that a letter is written to HM stating that your client beleives his flat rate if 8.5% and requesting that if they disagree with this that they reply to you within 28 days.


Send it by courier or special delivery so you know they have it.


I am sure your engineers would love the 8.5% but they are not repairing vehicles.


Main thing here is to protect yourself when the XXXX hits the fan.


Have they described their activity on the application form? Do they or do you have a copy of the form?


Constantly Confused's picture

I was leaning    1 thanks

Constantly Confused | | Permalink

towards the 'builder' items, but they aren't building.

On balance, I'm with you, 'Other' is the only safe place to put them IMO, though you could try it on with some of the lower ones.

sally1964's picture

Agree    1 thanks

sally1964 | | Permalink

I agree they are not builders but the vehicle repairers %age assume they have inputs which these people dont.


ALthought they are not builders they are labour only - this is what I was getting at.


I would be inclined to say that maybe they should be 14.5% but as it does not really fit then go for the 12% with a good description in the box.


I am sure this is a 'pub' problem where one person say I apply 8.5% and HM have not queried it which is not the same as HM agreeing it.


Strangely any investigations into VAT recently have all been on flat rate schemes where they check the %age.



Flat rate percentages    1 thanks

Oppco | | Permalink

In my experience HMRC, for some reason, never want get involved with giving guidance on which flat rate to use. They do publish a slightly more descriptive list of categories, but this would not help as 'railway maintenance engineers' are not on it (no surprise there)

The rule is to show you have considered the category of supply and have picked the closest flat rate description. My understanding is HMRC cannot then go retrospective.

I'm amazed how open to abuse the Flat Rate Scheme is.

I wholly agree with Sally, cover yourself on this one Louise


Another one

Roland195 | | Permalink

I post on this subject all the time as it is one of my favourite rants. The Flat Rate Scheme is the most ill defined collection of vague notions that HMRC have ever produced although it has a fantastic effect on my client's profits (at least so far).

In the OP's situation, 14.5% as labour only makes the most sense looking at it logically (if all you are providing is labour then it should not matter a damn what that labour is) but I would agree that 12% - Any other business is probably the most suitable.

However, that said, as the whole point of the scheme is to simplify matters for the average small business and no amount of knowledge (or intelligence it seems) is assumed then why not 8.5%? - A train is a vehicle and if their work is to maintain them then that would seem to fit (actually quite well in this case).

If HMRC have a problem with this then I cannot see how they can argue otherwise and the worst they can do is make them change but not retroactively.

I have a suspect they would have a hard time on appeal trying to suggest that the clients should have known better when the guidance they will point to is so vague.




mr. mischief's picture

opportunity    2 thanks

mr. mischief | | Permalink

The Flat Rate VAT scheme is an opportunity.

1.  In this case the client company clearly meets the description noted.

2.  You record this fact and document why the client meets the test.

3.  You inform the client of the potential risk in writing, but explain that you have a robust defence because the client meets the description on the website.

Job done, case closed.  It's not our job to write the HMRC website or their rules.  If it was it would be 25% of the size and 4 times more effective!

Are they fixing the infrastructure or the trains themselves?

wizzard | | Permalink

I'm not an accountant, but have you asked them, whether they repair/maintain the trains or the infrastructure that the trains run on?

If they don't actually repair/maintain the trains, then to a lay person, how on earth can they claim under "vehicle repairs"?

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