Chartered Accountants and Professional Business Advisers

Possible VAT claims for consultants and engineers

The original intention behind the VAT Flat Rate Scheme (FRS) was to make it easier and simpler for small businesses to deal with their VAT affairs and for a long time it achieved that aim.

Inevitably, however, HMRC has started to chip away at some of the advantages and one area that has been a bone of contention is the FRS percentages applicable to consultants and engineers.

The view taken by HMRC was that all consultants were ‘management consultants’ and should use the 14% rate (second highest) while all engineers were in the same category as architects, civil and structural engineers and should use the highest FRS rate of 14.5%. Thankfully this view was successfully challenged in a tribunal and HMRC appears to have conceded the point by amending the VAT Notice.

Affected FRS users should, therefore, review their position and if a lower percentage is appropriate (e.g. the 12% applicable to business services that are not listed elsewhere) should consider making a refund claim (subject to the normal four-year cap).

Specific advice should be obtained before taking action, or refraining from taking action, on the basis of this information.

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