24. TC - VAT Flashcards
What is VAT charged on?
The sale of taxable supplies by a taxable person
What is a taxable person?
A sole trader, partnership, limited company, club or association making taxable supplies
What is a taxable supply?
One on which output VAT is chargeable and input VAT can be recovered
Will be zero-rated, reduced-rated or standard
What is the rate for standard VAT?
20%
What is the VAT % for reduce rate?
5%
What is output VAT?
Vat collected by the taxable person on sales
Paid over to HMRC
What is input VAT?
Any VAT paid by a taxable person on purchases
Can be claimed back from HMRC
How is VAT paid/received from HMRC
Every month/quarter input and output VAT is netted off and paid/recovered from HMRC
What is a multiple supply?
Is where there are individual elements within the supply that are treated separately for VAT
E.g. use of football pitch (exempt) and playing in a league (standard)
What is a single supply?
Where there is just 1 supply (single rate of VAT) although it might be made yp of lots of different things (which individually might have diff VAT ratings)
Can an indiv who makes wholly taxable supplies recover input VAT?
Yes, as long as it relates to the taxable supply of goods
Can an indiv making wholly exempt supplies reclaim VAT and why?
No they can’t be a taxable person as they aren’t making a taxable supply
So can’t reclaim inout VAT
What is a partially exempt trader?
A trader who makes both taxable and exempt supplies
What input VAT can be reclaimed for a partially exempt trader?
It depends on the supply to which the input VAT relates
- Input VAT attributable to exempt supplies made by a partially exempt trader is not fully recoverable unless it falls below certain ‘de minimis’ limits
- Input VAT relating to taxable supplies can always be recovered in full, even if the trader doesn’t fall below the ‘de minimise’ limits
What is the simplified test for partial exemption?
If a business passes either Test 1 OR Test 2 below then they can treat itself as de minimise and provisionally recover all VAT
Test 1
Total input tax < £625/month on average
Exempt supplies < 50% of all supplies
Test 2
Total input tax less inout tax directly attributable to taxable supplies < £625/month on average
Exempt supplies < 50% of all supplies
TYU1: Bridie makes the following supplies in Sept QE
Standard-rated taxable supplies (excluding VAT) £50k
Exempt supplies £30k
Total £80k
Bridie’stotal input tax for period is £1,800
Calc the input VAT recoverable by Birdie for the Sept QE
- £1,800/3 = £600
< £625pm on average - £30k/£80k = 37.5%
Exempt supplies < 50% total supplies
Biride passes test 1 therefore her business is de minimise for the period and all input VAT can be recovered (£1,800)
TYU2
Fred makes the following supplies in QE 31 Dec
Standard VAT (Excl VAT) £37k
Exempt supplies £15k
Fred’s input Tax for the period is £4,250 of with £3,725 is attributable to taxable supplies
Calc the inout tax recoverable by Fred for this Q
Fred’s input tax for the period is £4,250, which is clearly more than £625pm so he fails test 1 and considers test 2
Test 2
1. (£4,250 - £3,725)/3 = £175
< £625m on average
- £15k / £52k = 28.8%
Exempt supplies < 50% total supplies
Fred passed the test therefore his business is de minimis for the period and all input VAT can be recovered
How is non-attributable input tax calculated for the standard partial exemption calc?
The input VAT that isn’t directly attributable to either taxable or exempt supplies e.g. relating to OH, needs to be apportioned between the 2 types of supply
Following formula is used to calcL
Total taxable supplies (1)/ total supplies (1) = %(2) x non-directly attributable input VAT
1) Exclude VAT and supply of capital items
2) Round up to nearest whole percentage
The remaining non-attributable input VAT is apportioned to exempt supplies
What is the next step once you have completed the VAT standard partial exemption calc?
The total input VAT relating to the taxable supplies (either directly attributable or apportioned) is fully recoverable
The total input VAT relating to exempt supplies (either directly attributable or apportioned) then needs to be tested against certain standard de minimise limits and if it falls below both of these, it can also be recovered.
Otherwise it is treated as irrecoverable
What are the standard de minimis limits for partial VAT calcs?
Inout tax relating to exempt supplies < £625/month on average
Input tax relating to exempt supplies < 50% of all input tax
What is an annual adjustment for partial exemption VAT ?
At the end of the partial exemption year, the simplified tests are applied to the total figures for the year as a whole
If the partially exempt trader passes test 1 or 2 on the annual figures then
What is an annual adjustment for partial exemption VAT ?
At the end of the partial exemption year, the simplified tests are applied to the total figures for the year as a whole
If the partially exempt trader passes test 1 or 2 on the annual figures then the business can recover all the inout VAT for the year
If both simplified test failed then the trader performs a full partial exemption calc based on the annual figures
If the total VAT recovered based on the annualised figures does not equal the total VAT recovered so far, then an annual adj is made to pay/ reclaim the diff
What is the benefit of the annual partial exemption test?
Gives a partially exempt trader the option of applying the de minimise tests only once a year
When can a business treat itself as deminimis for annual partial exemptions?
Provided the business was de minimise in the previous year, it can treat itself as de minimis in the current year and provisionally recover all inout VAT every VAT period without needing to perform any partial exemptions calc