Don’t Mess With Small Businesses

Stories of underdogs battling against evil in order to establish what’s right, never fail to pull at the heart strings. I was therefore compelled to write about the recent news of an engineering firm who stood up to HMRC, following misleading information, and won. I’m in no way saying HMRC is evil, it is just good to see a small company stand up for what is right.

It all began with the VAT status of the engineering business. In 2009, the company director applied for the flat-rate VAT scheme, due to none of the other categories provided by HMRC being suitable. Therefore, the company director went on to register under ‘Any other activity not listed elsewhere’, under a VAT status of 12%.

Many moons past, three years in fact, and following a VAT inspection, HMRC ordered the company to register under ‘Architect, civil and structural engineer or surveyor’. HMRC cited its flat-rate guidance leaflet, placing the company under the VAT category of 14.5%. The engineering firm therefore was required to pay arrears of £8,891 plus a significant penalty.

However, the company did not stand for this, claiming that a mechanical engineer is not, in any way, a civil or structural engineer. HMRC could not argue and the ‘golden leaflet’ (HMRC’s flat-rate guidance leaflet) had no legal standing. The company was therefore able to prevail and win its court case, walking away with nothing to pay.

The case was won because the flat-rate leaflet, cited by HMRC, could not stand up in court. This simple altercation could have cost the engineering firm over £10,000, which can be crippling for a small business. Not all stories have such a happy ending; it is therefore important to take time to pick the right VAT category to ensure you don’t face any large fines in the future. It also gives hope, and if you do think you have been misled, have picked the wrong category, or paid avoidable fines, please get in touch with me and I will be happy to advise.