1. Introduction to VAT Flashcards
What is Direct Tax?
It is tax paid directly to HMRC by the taxpayer and charged on
income or profits. (Eg Income tax, corporation tax, capital gains tax)
What is Indirect Tax?
It is a tax collected from the taxpayer by an intermediary
like a shop (Eg VAT)
What is Input VAT?
Tax you incur when PURCHASING a product or service
What is Output VAT?
Tax you add to the SALES price of a product or service
What is a Taxable person?
A business that is or should be VAT registered
Who suffers VAT?
The final customer (as long as they are not a VAT registered business). This is as they cannot claim back the VAT that is spent on purchasing the product/ service.
How can supplies be classified?
Exempt, Outside the scope and Taxable
What are the Taxable Rates?
- Zero Rated 0%
- Reduced Rated 5%
- Stannard Rated 20%
What are Outside of the scope supplies?
Transactions with no VAT implications. Not supplies of goods or services (Eg Wages, Dividends)
What are Exempt supplies?
Are supplies of goods and services that DO NOT have VAT added to them. (Cannot charge VAT to consumers and can not recover VAT on purchases) Eg Rent, Insurance, postal services.
What are Exempt supplies?
- Are supplies of goods and services that DO NOT have VAT added to them.
What are Exempt supplies?
- Are supplies of goods and services that DO NOT have VAT added to them.
What are examples of zero rated (0%) Taxable supplies?
- Most Food
- Clothes for children
- Newspapers
- Transport
What are examples of Reduced Rated (5%) supplies?
Gas and Electricity
What is the difference between an exempt trader and a zero rated trader?
- An exempt trader cannot be registered for VAT meaning they cannot claim back VAT on purchases.
- A zero rated trader can be VAT registered. This means they add 0% VAT on sales but more importantly can reclaim VAT back on purchases. (So every time a zero rated trader submits a VAT Return, they will be owed money back as their output VAT will always be 0)
