VAT – if even HMRC admit to not understanding it what hope have I got…?
When I set out on the adventure that is working for myself, I went to a session organised by Business Gateway in which a representative of HMRC came along and told all the aspiring entrepreneurs (there were about six or seven of us I remember) about tax and what we should do to make sure we were on the right side of the law. All good, interesting stuff, but when it came to VAT he admitted he didn’t understand it, telling us words to the effect of “I’m not sure that even our VAT specialists do!” He was joking about that (I think): I’m sure HMRC’s VAT specialists do understand their subject, even if their ‘normal’ tax people don’t.
Coming from a corporate background where I knew we claimed VAT back, I began by trying to do this, calculating VAT on everything and then claiming it back in my quarterly returns. That lasted for two quarters, by which time I was beginning to understand what the man from HMRC meant…
I switched to the flat rate scheme. This is much easier, but I still managed to get it wrong one quarter. Correspondence to HMRC in Liverpool followed, plus a small amount of interest had to be paid on the unpaid sum, but it was relatively painless and I made sure I didn’t do that again.
Now, I use XERO, which makes it an absolute doddle, or at least it did until there was a technical glitch one month. M&S, to their credit, took over all the liaison with XERO for me and although I had to file that quarter’s return on the ‘old’ HMRC system, it was not a massive inconvenience. XERO’s facility for doing all the sums and submitting the return in two clicks is brilliant.
That’s not the end of the story though. A friend, also self-employed, had his flat rate code changed by his accountant (not M&S) without his knowledge and this led to all sorts of grief and fines. He was not best pleased (least of all with his accountant). However, HMRC did concede that he was on the wrong flat rate code in the first place. As his business is virtually identical to mine, and I am on a different code (category of business) to him, I wondered if I could get mine changed too. The advice is that it’s not worth the hassle, because HMRC consider that the code first agreed is the one you should use unless there are very good grounds for making the change.
This seems blatantly unfair to me: there must be lots of people who start in business and then, as their work evolves, find that they should be under a different category/flat rate code. There also seems to be an implicit threat that if you ask to change anything, HMRC regards you with suspicion and then crawls over everything else you do (this is what happened to my friend, even though he had nothing to hide). Call me old-fashioned, but it’s a sad reflection of not only HMRC but also business people if, in these circumstances, the default position of the former is that the latter are ‘up to something’.
Post-BREXIT, there have been some suggestions in the business pages that the rate of VAT might be lowered. These articles also told me one thing that I didn’t know previously, to wit that VAT actually was a French idea in the first place and came into being here as a result of us joining the EU (or EEC as it then was). It’s partly to pay for our membership, so this makes me wonder… if we are leaving the EU, is there any chance of getting rid of it!? Just hoping…
Alastair Blair, thePotentMix