Flat rate scheme

A recent VAT case revolved around the VAT status of the business and how the business was defined under the HMRC VAT guidance report Harris & Co accountants Northampton

When it was first registered for VAT in 2009, Neil Harris, owner of Cumbrian-based engineering business Idess, applied for the flat-rate VAT scheme as none of the categories on the list supplied by HMRC appeared to be relevant to his business.

After taking advice from his accountant, Harris, a mechanical engineer, registered under ‘Any other activity not listed elsewhere’, with a flat rate of 12%.

Following a VAT inspection three years later, HMRC ordered that he should have registered in the category ‘Architect, civil and structural engineer or surveyor’. HMRC’s case cited its own flat-rate scheme guidance leaflet, which placed ‘engineering consultants and designers’ in the 14.5% VAT category.

It demanded arrears of £8,891 plus a 35% penalty, later reduced on review to 15%.

Harris and his accountant challenged the decision on the grounds that a mechanical engineer is not a civil or structural engineer. The challenge was successfully upheld.

HMRC was unable to argue its case; the guidance leaflet had no legal standing and the tribunal ruled in Harris’s favour. He walked away with nothing to pay.

‘The key to the whole issue was that the guidance notes had no backing in law,’ says Harris.

How many other engineers have been misled by the VAT guidance notes from HMRC into using a category that is only intended for structural and civil engineers.