HMRC computer provides the wrong answer
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Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.
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I've encountered a similar issue when wanting to register for 'Labour only' Construction where, no matter which business description is selected, there is no way to stipulate this particular % over the 'General' construction %.
I've encountered a similar issue when wanting to register for 'Labour only' Construction where, no matter which business description is selected, there is no way to stipulate this particular % over the 'General' construction %.
How funny, I literally just had this same issue a few moments ago and I know i'm going to in about 10 minutes time with another app I need to do. For now it's automatically applied a lower rate than I feel is due so i'll simply pen a quickly letter to the VAT dept asking them to amend.
Yes, they tried to shoehorn a mechanical service engineer into the same category as Architect / Civil engineer. I sent back the following with an example of someone who had won a case, never heard back and have been working on 12% since
I refer to your letter to my client dated 16th January advising that the reasonable choice he should be using trade classification 14.5% Architect / Civil Engineer.
I refer to your letter to my client dated 16th January advising that the reasonable choice he should be using trade classification 14.5% Architect / Civil Engineer.
'We wish to change the trade classification to 12% Business Services not listed elsewhere. My client is a mechanical service engineer and does not provide consultancy or design services. This sector code had been specifically selected after careful research in this area, the most relevant article I found was on Accounting Web :
Engineer wins VAT flat-rate appeal
Posted by nickhuber PM | on Thu, 29/05/2014 - 16:47 10383 15 comments print'
Do you believe that the VAT cost profile for your business as a 'tax consultant' is different to that of 'Accountancy or book-keeping'? I suspect not, or in fact the latter has a higher VAT cost profile, ergo the flat rate % allocated is entirely appropriate.
I disagree, I am not on FRS because my VAT averages around 12% of gross turnover, I couldn't afford to be paying 14.5%, that's 4 months mortgage extra!
Hardly the point JBKMP - the Flat Rate Scheme was introduced a simplification of the process and the law says nothing about using HMRC's interpretation of the business classification you fall into. If using simple English you don't fall fairly and squarely into a category you don't.
We've also hit a problem with HMRC - this time over NI new numbers starting with the prefix "KC" When a client has registered with the JobCentre they are issuing NI's with this new prefix. Unfortunately, HMRC is not accepting this until April 2017. There are a lot of companies around the country are experiencing this problem. Sage payroll is recommending we use the temp prefix "AA"
I think we should all be mindful that the HMRC categorisation cannot account for all shades of grey and we should go back to the basics of the scheme which is a business foregoes the right to reclaim most of its input tax in exchange for remitting a percentage of its VAT inclusive outputs.
So what advisors need to consider when selecting a FRS rate is what is the nearest FRS categorisation in terms of normal business cost profile? In my estimation a Tax Consultant's business would have the same cost profile as an Accountant and Bookkeeper and so 14.5% would be appropriate.
In my case I am a Juggler who performs in pubs so my Flat Rate is 6.5% because that is the only rate I can find that contains the word "Pubs".
And I don't want Rebecca Bennyworth telling me I'm wrong.
@peemonaghan - the 'basics' of the scheme are the Regulations. It is black and white - you either come under a category or you don't. The Regs do not permit you to choose a category on the basis of the nearest business cost profile. After all I expect that 99% of businesses only use Flat Rate because it saves them money.
FA2002 S23(3) states that FRS categories will be determined by reference to entitle to input tax credit - so the cost profile is indeed what underpins the FRS categories. Indeed the Justices in the Idess case state this.
And please enlighten me as to the case law reference that says Tax Consultants should not be included Accountants and Bookkeepers?
Tax [and that includes VAT] is imposed by law. If the law, as supported by the Tribunal, allows someone who is neither an accountant/bookkeeper nor a management consultant to claim that he or she is entitled to register under the FRS as 'other', that is the end of the matter. There is no separate provision of cost analysis. If HMRC want to change this, they need to change the categories set out in SI1995/2518 para. 55K(4). To do this a new Statutory Instrument will be required, and the likelihood of this in the near future is somewhat remote in the post Brexit world
I too had a problem when registering a client for the flat rate Vat scheme. His job is repairing railway train parts and although we entered the main business as that, the closest their website could get was "Repairing cars" A slightely lower rate of Vat than we expected
I applied to register an electrician. The HMRC computer wanted to put him into Labour only building or construction services. However the guy works with industrial plant and has never set foot on a building site so this cannot be right. What HMRC need to do is amend their system so that you can select a sector other than the suggested one, but require you to provide an explanation in another box.
I have encountered this recently. The business category I required was project and logistic management. Only category the online form will give me is management consultant and this is not appropriate.
Thank you to everyone for the comments on my article - the individual examples are very useful - the issue about the HMRC computer putting all builders into the 'general construction' rather than 'labour only' category is one I had not thought about - how can it ever know?
I like the suggestion of Jon that the computer should offer the business owner the chance to select a category other than the one suggested, with an explanation box to support the change. I'll raise this at our ATT meeting in early September when we discuss this issue. The flat rate scheme certainly presents some challenges!
Neil Warren
I have had the same problem. Client is an energy broker but the SIC code for this automatically suggests flat rate of 9.5% for other manufacturing. Although we would like this lower % I don't think it Is right. Surely this could be remedied by allowing an override when making an online flat rate application. The system is trying to be too clever.
A good article, but lets just member the rules, before we get drawn in to much, The FRS is for clients who incur have very little inputs that are subject to Vat, normally some one working from home whos main expenses is motor fuel, or people who prefer to uses the easiest scheme going.
Its a nice little scheme Lets not make it over complicated with looking at the %.