ATT: Flawed HMRC guidance means SMEs are overpaying VAT

The UK Association of Taxation Technicians (ATT) has urged owners of small and medium sized businesses to act fast to ensure that they are not overpaying VAT.

According to ATT, SMEs and their owners are being overcharged due to HMRC’s ‘flawed’ and often misleading guidance over its flat rate scheme.

The scheme, which was initially set up to simplify VAT accounting for small businesses, has found itself under fire at numerous VAT tribunals, where HMRC has been urged to ‘look again’ at the VAT assessments undertaken by scheme users.

HMRC narrows down their flat rate scheme into 51 categories – some of which the ATT says are unsuitable or too vague for many businesses to fit into.

The problem lies in misleading guidance from HMRC, which often urges confused SMEs to position themselves in categories bogged down by a higher rate of tax.

For example, HMRC’s guidance says:  “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”.

However, the rate for management consultants is 14 per cent, in comparison with a charge of just 12 per cent for businesses selecting the ‘other business services not listed elsewhere’ category, which, in this particular case, the ATT would argue is fairer and more suitable.

“HMRC must provide greater clarity and certainty to scheme users,” said ATT president Michael Steed.