The First-tier Tribunal decision in AML Consulting Limited (TC/2011/6291 published on 10 August) – where an HMRC officer refused to retrospectively change a flat rate scheme percentage on the basis that “it is the policy of HMRC not to back date percentage changes …” – serves as a reminder of HMRC policy in this area.
It seems odd that this case should have reached the Tribunal at all, given that HMRC stated at the Tribunal itself that it was their policy to allow a change of percentage if the original choice was unreasonable.
When making the original decision, there was no indication that the HMRC officer took any account of the reasonableness of the original choice made by the business – which was based on the fact that services were to be supplied which did not materialise, and the services actually provided were different in character and attracted a different flat rate scheme percentage.
Apparently the officer making the decision made no enquiries of the appellant and the appellant was not given the opportunity to explain the distinction between the services. The significant differences were, howevere, very articulately detailed by the appellant for the Chairman of the Tribunal and the Tribunal found that the decision made by HMRC to refuse the retrospective change of category was not a reasonable decision and that the appeal should be allowed.
This case highlights that HMRC must act reasonably when taking any decision relating to the flat rate scheme. What is reasonable to HMRC and to businesses may of course be entirely different.