Potentially good news for contractors as HMRC has made some changes to its Flat Rate VAT guidance. This is a result of recommendations from several judges following various tribunal cases ruling against the department.

The changes are around the flat rate categorisation and therefore the amount of VAT which will be owed to HMRC. Companies 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, consultants are no longer required to select ‘management consultants’, which incurs a flat rate of 14% VAT.

Instead, companies that are consultants but not necessarily ‘management’ consultants, can now choose the category ‘business services not listed elsewhere’. This category is charged at a smaller rate of 12%.

This also applies to designers and some engineers whose services don’t fall sensibly within the category for ‘architect, civil and structural engineer or surveyor’, and where under the current system more they are paying VAT of over 2% more than they need to.

Whilst some of flat rate VAT categories are, understandably, still vague. Your case will be strengthened if you can provide evidence of how you came to your category choice and can show your choice is fair and reasonable.