Errors made in flat rate scheme

In December 2017 HMRC wrote to the taxpayer to begin a review into the company’s VAT returns. The taxpayer was authorised to use the flat rate scheme. Its business category was the 14% rate for management consultants reduced to 13% in its first year of using the scheme.

The director made two basic errors in her calculations. First she accounted for flat rate scheme tax by applying the 13% and 14% rate to her net rather than gross sales; the scheme rules are clear that it is applied to VAT inclusive sales and also sales that are exempt and zero rated. Second she claimed two amounts of input tax for £24 and £39 on separate returns. A scheme user can only claim input tax on capital expenditure goods costing more than £2 000 including VAT.

HMRC issued an assessment for £8 474 in December 2018...