Small businesses at risk of paying too much VAT

There are growing concerns that SMEs are increasingly being overcharged VAT because of failings in guidance issued by the tax authority in relation to its flat rate scheme.

The Association of Taxation Technicians (ATT) has said that officials at HM Revenue & Customs (HMRC) need to do more to address the current situation.

The flat rate scheme had been drawn up with the aim of simplifying VAT rules for the UK’s micro businesses. These firms are responsible for choosing their own category, which is used to calculate the amount of tax they should pay.

Problems have arisen because not all business sectors are covered by the 51 scheme categories, including many consultants.

As a result many have chosen the sweep-up category for “other business services not listed elsewhere”.

Senior figures at the ATT believe that HMRC should take heed of a number of recent tax tribunal cases and amend their guidance to ensure that small business consultants aren’t overcharged.

Michael Steed, the organisation’s president, said: “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.”