Its been drawn to our attention that – unannounced – HMRC have added a Flat Rate VAT Trade Sector called “Yoga Instruction” at 12%.
Previously there was no specific Trade Sector for Yoga and Yoga Businesses using the VAT Flat Rate Scheme generally used Sport and Recreation – 8.5%.
If you are VAT registered and use the VAT Flat Rate Scheme you need to swap to the new rate – which will obviously increase the VAT you pay.
Is there a need to make retrospective corrections? Probably not. Businesses using Flat Rate VAT are required to regularly review their choice of Trade Sector and VAT rate, and adjust it if appropriate. However if the previous rate was used in good faith then no retrospection applies. Given this is a new rate issued by HMRC, and without announcement, impacted businesses simply need to switch to it once they become aware of its existence, on the basis that it is a new, and more appropriate, rate for their business.
Obviously this is only of relevance to VAT registered businesses.
Learn more about VAT in general here – VAT Introduction
https://yogatax.co.uk/help/vat/
Learn more about Flat Rate VAT – Flat Rate Scheme
https://yogatax.co.uk/help/vat/vat-flat-rate-scheme/
Update – 26 July 2022. The HMRC VAT notice on Flat Rate Scheme, VAT Notice 733, links to HMRCs list of business sectors. Yoga, and inter alia, the changes mentioned above are not listed. The most obvious sector for a Yoga business is “Sport or Recreation – 8.5%”. The 12% rate comes from “Any other activity not listed elsewhere – 12%”. If you apply to join the Flat Rate Scheme, then typing yoga into the search box comes up with a category for “Yoga Instruction” and places this in “Any other activity not listed elsewhere – 12%”. Likewise “Sports Education” directs to “Any other activity not listed elsewhere – 12%” which makes rather a mockery of the 8.5% rate.
Given that the “Sport or Recreation – 8.5%” was accepted by HMRC for Yoga businesses until recently, and the seemingly new Yoga sub sector is buried in the detailed registration forms, this creates a dilemma for businesses currently using 8.5%. The dilemma is around the fact that this doesn’t appear to be any official pronouncement or ruling from HMRC, just a back end change in their Flat Rate VAT registration procedure. Hew are businesses meant to know this? Moreover would the reasonable person, looking at the headline list of sectors, know that HMRC considers Yoga “Any other activity not listed elsewhere” rather than “Sport or Recreation”. It would be an interesting set of arguments at a Tax Tribunal, but pity the person who is the subject of a test case.
