The HMRC is being urged to take action to correct VAT overpayments it has charged SMEs due to problems with its guidance on it flat rate scheme, reports SME Insider.
According to the accountancy association AAT, HMRC must re-examine assessments of SMEs that pay a flat rate of VAT following a number of tax tribunal decisions that have gone against HMRC.
The flat rate scheme was designed to simplify VAT accounting for owners of small and medium-sized firms that have to choose their own category from 51 options, determining the percentage of their gross income they will pay as VAT on their quarterly returns.
But the categories do not cover all businesses, claim the AAT, forcing some to select the default ‘other’ option, which carries a 12 per cent tax rate.
This goes against HMRC guidance for SMEs to make a concerted effort to choose a specific category, which often have a higher rate of tax associated with them.
The HMRC guidance states: “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.” Management consultants must pay 14 per cent, rather than the default 12 per cent.
Michael Steed, ATT president said that “the time is right” for HMRC to amend its guidance and determine that SMEs had selected the right category for their profession and are paying the right amount of tax.
He said: “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.”