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In what could be great news for you if you work as a consultant, HMRC has made some alterations to its Flat Rate VAT guidance documentation. This comes at the recommendation of several judges following various tribunal cases ruling against the department.
Firms are of course still responsible for telling HMRC which category they fall into, which relates to the amount of tax they should pay. Under the new version of the notice though, all consultants are no longer required to select ‘management consultants’, which incurs a flat rate of 14% VAT.
Those businesses who do not identify as ‘management’ consultants (marketing or employment consultants, for example) now have permission to choose the category ‘business services not listed elsewhere’. This category is charged at a smaller rate of 12%.
All engineering consultants and designers were previously required to choose the category ‘architect, civil and structural engineer or surveyor’, stuck with a flat rate of 14.5%.
Mechanical engineers are now advised to choose the aforementioned category ‘business services not listed elsewhere’, giving them a 2% flat rate VAT reduction.
In areas of doubt, HMRC advise within their revision: “It will be sensible to keep a record of why you chose your sector in case you need to show HMRC that your choice was reasonable.”
You might avoid a fine if a close relative died shortly before the self assessment deadline, you've been seriously ill, or if you had major IT problems.