6. Value Added Tax

Question 1

What is VAT charged on?

Answer 1

Any supply of goods or services made in the UK, unless exempt, which is made by a taxable person whilst carrying on business

Question 2

The supply of what six things is exempt from VAT?

Answer 2

1. Land
2. Insurance
3. Financial services
4. Education
5. Health services
6. Postal services

Question 3

The supply of what five things is zero-rated from a VAT perspective?

Answer 3

1. Food (other than in catering context)
2. Books/newspapers
3. Water/sewer services
4. Transport
5. Residential construction

Question 4

The supply of what three things is taxed at a reduced VAT rate of 5%?

Answer 4

1. Domestic fuel
2. Installation of energy-saving materials
3. Child car seats

Question 5

When must a business compulsorily register for VAT?

Answer 5

where it at if at any month end taxable supplies made by them during the past year exceed £85,000.
* even if threshold is an accumulated total of VAT paid by a sole trader in respect of different businesses it runs.

Question 6

If a person runs multiple businesses, do all of them need to be registered reparately?

Answer 6

no - person can only have one VAT registration number.
* exception - divisions in companies

Question 7

What does the future test look at and how soon must registration occur after passing the threshold with this method?

Answer 7

Taxable sales in the next 30 days alone.

HMRC must be notified before the relevant 30-day period expires.

Question 8

Who is not able to voluntarily register for VAT?

Answer 8

Someone who only supplies exempt items or services

Question 9

When may a business voluntarily deregister for VAT?

Answer 9

If taxable turnover falls below £83,000 for a 12-month period

Question 10

Who may opt to charge VAT even though it would normally be exempt?

Answer 10

Owners of interests in commercial land and building who are leasing out the premises

Question 11

Where tax on an interest in commercial land or buildings is opted for, who might this be a problem for?

Answer 11

Tenants who wholly or partially make exempt supplies, as they will not be able to recover input tax on their lease

Question 12

What type of property does the option to tax not apply to?

Answer 12

Residential

Question 13

What two things must be distinguished from exempt land which an owner may opt to charge VAT?

Answer 13

1. Supply (i.e. construction) of new commercial building (taxed at 20%, not exempt)
2. Sale of a commercial building less than three years old (taxed at 20%, not exempt)

Question 14

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?

Answer 14

Six months, as long as it hasn’t been put into practice

Question 15

If the option to tax has been put into practice, after what amount of time can it be revoked with the consent of HMRC?

Answer 15

20 years

Question 16

When must a registered business account for VAT?

Answer 16

One month after the end of each VAT quarter

Question 17

What determines the accounting period within which a supply of goods or services will fall?

Answer 17

The tax point (time of supply)

Question 18

What is the default tax point for goods?

Answer 18

The time the goods are removed, or the time they are made available to the person to whom they are supplied

Question 19

What is the default tax point for services?

Answer 19

When the service is performed

Question 20

What happens if input tax exceeds output tax?

Answer 20

HMRC will issue a rebate

Question 21

What are two things on which the VAT cannot be reclaimed?

Answer 21

1. Cars
2. Business entertaining

Question 22

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?

Answer 22

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)

Question 23

When is VAT payable to the HMRC?

Answer 23

Within one month from end of each quarter (every 3 months).

• If pay over £2.3 million per year of VAT - must make monthly payments instead based on total annual estimate divided by 24.

Question 24

How long does a trader have to supply customers with a VAT invoice?

Answer 24

30 days

Question 25

When is VAT registration compulsory?

Answer 25

if turnover exceeds £85,000

Question 26

What recording and invoicing requirements are applicable to a business administers its VAT through the HMRC optional flat rate scheme?

Answer 26

It must issue tax invoices to VAT-registered customers but does not have to record details of sales invoices issued or purchase invoices received to calculate its VAT liability.

Question 27

Where a figure is VAT inclusive, how do you calculate the VAT due?

Answer 27

divide the amount including vat by 6

Question 28

Within how long must notice be given by a tenant/seller if the elect to opt to charge VAT?

Answer 28

30 days using VAT 1614