Following criticism from professional bodies and a number of unsuccessful visits to the First Tier Tribunal (FTT) HMRC has issued a revised version of VAT notice 733 Flat Rate Scheme to update their guidance in accordance with the FTT decisions.
The previous version of the notice listed a number of trades and professions at paragraph 4.4 and indicated the relevant sectors and percentages that they should choose. These had a higher percentage than their preferred ‘business services not listed elsewhere’ which has a 12% rate.
Most notable were that:
- All consultants, including employment law, health & safety or advertising consultants should choose ‘management consultants’ as their business sector with a 14% rate. The notice stated this sector was for all consultants, not just those fitting the traditional idea of a management consultant.
- Mechanical engineers should choose ‘architect, civil and structural engineer or surveyor’ as their business sector with a 14.5% rate.
Most recently in SLL Subsea Engineering v HMRC [2015] TC04256, and prior to that in Idess Ltd v HMRC [2014] TC03638, the FTT agreed with the taxpayer that mechanical engineers should be correctly classified as ‘business services not listed elsewhere’. Mechanical engineers working on plant and machinery were not the same as civil or structural engineers who were working on projects involving land and buildings.
The FTT was critical of HMRC in their reliance upon their own guidance and said that they should have referred back to the ordinary meaning of the legislation.
HMRC has now removed paragraph 4.4 and instead advises businesses to 'use ordinary English' and choose the sector which ‘most closely describes what your business will be doing in the coming year’. Readers are then directed to the relevant section in the VAT Regulations and to HMRC’s manual guidance.
In JJK Engineering Ltd [2016] UKFTT TC05351 the FTT allowed a mechanical engineering company to backdate the change from “architect, civil and structural engineer or surveyor” to "any other business not listed elsewhere" as the original choice did not accurately reflect the nature of the company's business and was therefore unreasonable.
Links
HMRC revised VAT notice 733
Cases:
