The Chartered Institute of Taxation (CIOT) fears that efforts to tackle businesses accused of misusing a VAT simplification scheme could cause harm to many entirely innocent firms.
While the CIOT has said it supports efforts to stop those abusing the Flat Rate Scheme (FRS) it believes that HM Revenue & Customs (HMRC) officials should approach the problem in a different way.
At present the scheme, which enables firms to pay VAT at a fixed rate determined by their type of business, is used by around 411,000 businesses around the country.
Last autumn, Philip Hammond voiced concern that the scheme was being abused and vowed to take action to stamp out the practice.
If the changes take effect, those businesses making use of the FRS will need to calculate whether they are also classed as a limited cost trader and, if so, will pay the tax authority 16.5 per cent of their takings.
Peter Dylewski, who chairs CIOT’s Indirect Taxes Sub-committee, has warned against the tactics.
“Targeted action against abuse of the FRS, which is masterminded by a relatively small number of businesses, is preferable to such wholesale changes,” he said.
“We are concerned that HMRC has significantly underestimated the collateral impact of these changes, both in terms of the number of businesses affected, and the financial impact.”
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