VAT Flat Rate Scheme – choose the business category carefully

Idess Ltd (TC 03638, reported on 2 June joined the flat rate scheme when it registered for VAT as an ‘engineering & design consultancy’. The scheme category chosen by the business was ‘any other activity not listed elsewhere’ resulting in VAT payable of 9% based on its turnover (Regulations, SI 1995/2518, reg 55K(4)).

HMRC considered the company’s activities were as ‘architect, civil and structural engineer or surveyor’ which attracted a higher flat rate of 12½%. The company appealed against the subsequent assessment and penalty raised by HMRC.

The Tribunal found that the company’s work did not involve land, buildings, or other structures, but did involve plant and machinery.

The tribunal considered that “Civil and structural engineers” denoted operations relating to land, buildings and other structures and that there was an obvious defining line between mechanical engineering and the other two categories of engineering. The category chosen by the company was therefore apt to its circumstances and the appeal was allowed.

This case highlights the importance of getting the flat rate scheme category correct and that perhaps other businesses in the “architects, civil and structural engineers or surveyors” category may be improperly categorised and paying too much VAT.

If you require any further information in relation to this scheme, please contact the TaxDesk on 0845 4900 509 and ask for Vaughn Chown.