Reply To: Incorrect Flat-Rate Percentage

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HMRC’s advice for businesses is to choose the trade sector that best matches the activities of your business. In some cases, this is quite simple but there are instances where the activities of the business are relevant to multiple sectors.

The law (SI 1995/2518, Reg 55H) states that “the appropriate percentage shall be that specified in the table for the category of business that he is expected, at the relevant date, on reasonable grounds, to carry on in that period”.

Notice 733 describes the procedure for a business choosing its rate, stating that: “The descriptions of the sectors are not technical and use ordinary English. So if there is a match or a close fit, use that sector.”

In summary the rules can be summed up as:

1. if you are obviously X category but you has chosen Y category, then you or HMRC can correct this retrospectively as this is “an error”.

2. if you could be X or Y and has chosen X, but HMRC prefer Y: then HMRC cannot assess for back tax (because the trader’s choice was reasonable), but HMRC can insist on Y going forward (because that is also a reasonable decision and the tribunal cannot overturn it).

Hope this helps.

If you are struggling to come to a decision you can ask HMRC for guidance but ultimately the decision falls with you.