6. Value Added Tax Flashcards
What is VAT charged on?
Any supply of goods or services made in the UK, unless exempt, which is made by a taxable person whilst carrying on business
The supply of what six things is exempt from VAT?
- Land
- Insurance
- Financial services
- Education
- Health services
- Postal services
The supply of what five things is zero-rated from a VAT perspective?
- Food (other than in catering context)
- Books/newspapers
- Water/sewer services
- Transport
- Residential construction
The supply of what three things is taxed at a reduced VAT rate of 5%?
- Domestic fuel
- Installation of energy-saving materials
- Child car seats
When must a business compulsorily register for VAT?
If its gross income excluding exempt goods will in any 12-month period exceed the VAT threshold which is currently £85,000
What are the two ways to test if gross income will exceed the VAT threshold?
- Historic test
- Future test
What does the historic test look at and how soon must registration occur after passing the threshold with this method?
Taxable sales in the preceding 12 months, on a rolling basis.
HMRC must be notified with 30 days.
What does the future test look at and how soon must registration occur after passing the threshold with this method?
Taxable sales in the next 30 days alone.
HMRC must be notified before the relevant 30-day period expires.
Who is not able to voluntarily register for VAT?
Someone who only supplies exempt items or services
When may a business voluntarily deregister for VAT?
If taxable turnover falls below £83,000 for a 12-month period
Who may opt to charge VAT even though it would normally be exempt?
Owners of interests in commercial land and building who are leasing out the premises
Where tax on an interest in commercial land or buildings is opted for, who might this be a problem for?
Tenants who wholly or partially make exempt supplies, as they will not be able to recover input tax on their lease
What type of property does the option to tax not apply to?
Residential
What two things must be distinguished from exempt land which an owner may opt to charge VAT?
- Supply (i.e. construction) of new commercial building (taxed at 20%, not exempt)
- Sale of a commercial building less than three years old (taxed at 20%, not exempt)
Within what time limit can someone who opts to charge VAT change their mind, such that HMRC will revoke the option as if it had never been exercised?
Six months, as long as it hasn’t been put into practice
If the option to tax has been put into practice, after what amount of time can it be revoked with the consent of HMRC?
20 years
When must a registered business account for VAT?
One month after the end of each VAT quarter
What determines the accounting period within which a supply of goods or services will fall?
The tax point (time of supply)
What is the default tax point for goods?
The time the goods are removed, or the time they are made available to the person to whom they are supplied
What is the default tax point for services?
When the service is performed
What are two situations in which the tax point will be altered?
- If supplier issues VAT invoice or receives payment before the goods are delivered or made available, the tax point becomes that invoice or payment date
- If a VAT invoice is issued within 14 days after the default tax point, the invoice date becomes the new tax point
What happens if input tax exceeds output tax?
HMRC will issue a rebate
What are two things on which the VAT cannot be reclaimed?
- Cars
- Business entertaining
What is a quick way to calculate the VAT from a VAT-inclusive figure at (1) the standard rate, and (2) the reduced rate, and why is this the case?
Standard rate: Divide the VAT-inclusive amount by 6 (x + 20% VAT = 6/5x)
Reduced rate: Divide the VAT-inclusive amount by 21 (x + 5% VAT = 21/20x)
