14: VAT Flashcards
What is taxable supply and taxable person?
Supply: any supply of goods or services made in the UK other than an exempt supply
Person: sole trader, partnership, limited company, club or association making taxable supplies
Define input and output VAT?
VAT collected by the business on sales made to customers is output VAT
VAT paid by a vat taxable person on purchases is input tax. Can be reclaimed
This is self assessed - must be netted off and the different paid to/received from HMRC
Why would you want to be VAT registered, if your goods are zero-rated?
Can reclaim input tax still!
What are the 5 VAT classifications, and give examples in each?
Outside of scope: dividends, salaries
Exempt: insurance
Zero-rates: food, kids clothes
Reduced rate: domestic utilities
Standard rate: everything else
How does an output VAT supplier compensate for an error?
We are assuming he accidentally charged the customer exclusive of VAT
The trader is responsible
The amount the trader receives is therefore actually considered to be inclusive of VAT
How does VAT registration work for a sole trader?
They should have one single VAT registration, even if they carry on several businesses
Each limited company should have one registration
For everyone, must register online
What are the two turnover tests?
Historic test
Future prospects test
How does the historic test work?
Do taxable supplies in the last 12 months exceed reg limit?
Performed at end of each month
Notify HMRC within 30 days of the end of the month in which the turnover limit was exceeded
Effective: from the first day AFTER the end of the month following the relevant month
Trader need not register if will go below deregistration limit in next 12 months, or if the business only makes zero-rated supplies
How does the future prospects test work?
Will taxable supplies in next 30 days alone exceed registration limit?
Considered constantly
Notify HMRC within 30 days of realising the threshold will be exceeded
Effective immediately
Trader need not register is business only makes zero rated supplies
What are taxable supplies?
All sales excluding:
- VAT
- Exempt supplies
- supplies outside the scope of VAT
- sales of capital assets
What are the four responsibilities of being VAT registered?
- Charge output tax on taxable supplies
- Quote the VAT registration number on all sales invoices
- File a VAT return for their allocated ‘tax period’ (normally every three months)
- Maintain VAT reports so that input tax can be recovered
What are the advantages and disadvantages of voluntarily registering for VAT?
Advantages:
- avoids penalties for late registration
- can recover input VAT
- can disguise the small size of a business
Disadvantages:
- burden of compliance with admin
- must charge output VAT, which will make goods more expensive
What is the effect of compulsorary de registration?
Deregistration must happen when the business ceases to make taxable supplies
HMRC must be notified within 30 days of when the person becomes aware they will no longer make taxable supplies
Deregistration is effective from the date taxable supplies cease
When can a company deregister voluntarily?
If there is evidence that taxable supplies in the next 12 months will not exceed the deregistration limit
12 months starts whenever
Effective from date or request, or agreed later date
What is the effect of deregistration?
VAT must be accounted for on any assets or inventory held on which a deduction for input tax has been claimed.
This can be waived if it is less than £1,000
What is the tax point?
The date of a transaction for VAT purposes
Important because it identified which quarter the transaction falls in
What are the BPT indicators?
Goods - the date removed from inventory or despatched
Services - date performed
Goods on sale or return - earlier of:
- date goods adopted by customer
- 12 months after dispatch date
What are the three steps to determining which tax point to use?
- Identify BTP
- On or before BPT, can you use one of these?
- a tax invoice issued
- a payment been received - If no, can you use this?
- a tax invoice issued within 14 days of BTP?
How does a deposit work with tax points?
A deposit has a completely separate tax point to the balancing payment
What 6 things make up output tax?
Standard rate sales
Reduced rate sales
Goods taken for own use
Gift of goods
Discounted sales
Private fuel for employees
How does goods taken for own use work with output tax?
If a trader withdraws goods for personal use, output VAT must be accounted for on the full replacement cost
How does goods taken for own use work with output tax?
Gifts are taxed at replacement value
UNLESS the cost of gifts made to the same person does not exceeds £50 (exc. VAT) in any 12-month period
Neither trade samples or gifts of service are taxable
What are the two options with showing discounts?
Charge VAT on undiscounted price, then the supplier issues a credit note
Show both amounts on the invoice. Supplier includes a statement that the customer can only recover input tax on the amount actually paid
How do you approach questions on private fuel for output tax?
- Find out the recoverable input tax
(Fuel paid / 6) - Find the scale rate for the car (you will be given this)
- Divide this scale rate by 6 to get the output tax
What three things go into input VAT?
Standard-rate expenditure
Reduced-rate expenditure
Recovery of output VAT previously paid on bad debts
On what conditions can the output VAT on bad debts be reclaimed?
The debt is at least 6 months overdue
The debt has been written off in the seller’s books
Under what circumstances can pre-registration input VAT be reclaimed?
Goods
- must be acquired for business purposes and still in inventory
- acquired less than 4 years before registration
Services
- must be supplied for business purposes
- supplied less than 6 months before registration
Under what four conditions is input tax irrecoverable? (IMPORTANT)
Cars (unless used for 100% business purposes)
Non-business items
VAT items for which no VAT receipt is held
Business entertaining, unless:
- staff entertaining
- entertaining foreign customers
What should be included as the cost for capital allowance purposes?
If the VAT is irrecoverable, like cars, put the full cost on including VAT.
Include accessories too.
