5. Value Added Tax Flashcards
Two distinct aspects of VAT
- Output Tax (registered business charges this to their customers)
- Input tax (charged to the business by the suppliers)
Current standard rate of VAT
20%
What falls into the ‘reduced rate’ category of VAT
Domestic Fuel and children’s car seats taxed at 5%
Are legal services ‘exempt supply’?
No, they are subject to VAT at the standard rate
Definition of ‘taxable person’
A person must register if, broadly, the value of taxable supplies (not profit) in the preceding 12 months exceeded a figure specified in each year’s Budget (£90,000 for 2024/25)
Can a non-taxable person register for VAT voluntarily ?
Yes - unless they are making an exempt supply only (ie. healthcare, insurance etc.)
When are tax invoices required? Deadlines?
A taxable person making a taxable supply to another taxable person must, within 30 days after the time of supply (or within such longer period as HMRC allows), provide them with a tax invoice, which includes certain prescribed information.
What is a tax invoice
Evidence of their (a taxable person’s) right to recover the input tax on a supply made to them, ie without such an invoice they will generally be unable to claim an input credit, irrespective of whether or not they have made payment to the supplier.
General requirement for submitting VAT returns to HMRC?
Accounting for VAT will generally be by reference to quarterly accounting periods. Within one month after the end of each quarter, a taxable person must submit a completed return form to HMRC, together with a remittance for the tax due.
Does a firm need to charge VAT on disbursements for their clients?
No if:
- firm only acted as agent of client in paying third party
- client used and received goods and services provided
- client was responsible for paying third party (eg. SDLT)
- client authorised you to make payment for them
- client knew services would be provided for by a third party
- your outlay will be separately itemised when you invoice your client; you recover only the exact amount which you paid to the third party; and
- the goods or services, which you paid for, are clearly additional to the supples which you make to your client on your own account
Examples of disbursements where a firm does not charge VAT separately to their clients:
- Inheritance tax
- capital gains tax
- SDLT and SD
- estate agents’ fees
- Statutory charges such as incorporation fees ,land charge and land registry fees, probate fees
- charges for professional services of third party, because these are supplied to the client not the solicitor (eg. estate agent and potentially surveyors, witnesses, charges for police etc.)
Which items do not qualify as disbursements for firm VAT purposes:
those which are a necessary part of the service supplied to the client, for example, telephone charges, postage and photocopying charges; these are overheads of the business
Is a search fee treated as a disbursement for VAT purposes?
- If it is passed on to the client without comment or analysis, the fee may be treated as a disbursement – it would be relatively unusual for this to be the case.
- More commonly, the firm will use the information to provide advice or a report and here the fee for the search will form part of the charges for its services and will be subject to VAT.
If search fee is not treated as a disbursement for VAT purposes (treated as a charge as a part of solicitors services) - how will a solicitor record this in their accounts?
CR Cash Account - Business Section (VAT Exclusive Amount)
CR Cash Account - Business Section (VAT)
DR Searches Account
DR HMRC Account with VAT charged to the firm
Paying search fees - when they are recorded separately from professional charged on bill, how is VAT recorded on the accounts?
CR Cash Account (Business Section)
DR Client Ledger Account business section (VAT exclusive amount, with note)
DR HMRC Account with VAT input tax charged to firm