Get Your Flat Rate Percentage Right
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17th January 2014 - Vat People
Case law for the flat rate scheme is gradually evolving and
confirms some interesting principles. The choice of flat rate
by a business is in theory quite straight forward. The business should
the type of activities and select the most appropriate percentage for
sector. However, real life is never that straight forward and the
flat rate percentages can also not be as easy as it might seem.
This is particularly the case where the business has income
from two or more different activities in which case the business is
take a view based on reasonable grounds for the appropriate percentage
The problem is that what may seem reasonable grounds for choice of a
by a business may not seem quite as reasonable to HMRC. This may then
lead to a
dispute and an assessment for VAT as is highlighted in the recent case
Vintage Tea House.
The Vintage Tea House was a business selling teapots, mugs
and other items as well as serving tea and other refreshments. The
VAT registered and applied to use the flat rate scheme in MAY 2008.
operating a tea shop it opted to use the flat rate for retailing that
listed anywhere else, rather than using the one for catering services.
rate for retail sales was 7.5% whereas the rate for catering was 12.5 %.
The reason that it opted for a percentage appropriate for
retailers was that it operated from premises under a lease where
ancillary to retail sales of goods. HMRC visited the business and
VAT on the basis that the business should have used the percentage
to catering services on the basis that the turnover from catering
between 65 to 78% of the total takings.
The tribunal chairman allowed the appeal in part as he felt
it was reasonable that in the first year of trade the business would
information to gauge the level of catering to other sales so that it
reasonable to use a percentage based on the operating lease, that is
retail biased then catering. However, the Tribunal chairman upheld the
assessment for later periods on the basis that the business had applied
local authority for a change in the use of the property from A1 retail
A1 retail and A3 café. The change of use coupled with the fact that the
turnover after the first year of trading clearly indicated that
was the main source of income meant that the use of the flat rate for
sales was no longer a reasonable choice for the business.
If you have a client using the flat rate scheme or you are a
flat rate scheme user it is worth checking that the percentage that has
applied is the most appropriate one especially if you have income from
variety of different activities.
About the Author
VAT People are leading VAT and Customs Duty
consultants based in the
North West of England. We work with a wide range of businesses
throughout the UK as well as assisting our accountancy colleagues to
unravel the thorny VAT issues for their clients. We are one of the UK's
largest and most comprehensive sources of VAT and Customs advice, our
consultancy team having over 140
years of experience in VAT and Customs
gained in either HMRC or a Big 4 accountancy practice environment.
Call us on our VAT helpline 0800 077 4604 to discuss. All initial discussions are free with no-obligation.
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Article Published/Sorted/Amended on Scopulus 2014-02-05 09:12:29 in Tax Articles