8 - VAT and corporation tax Flashcards
What are the 3 main rates of VAT?
Zero
20%
5% reduced
Who is VAT administered by
HMRC
What is an exempt supply?
One that VAT does not apply on, such as banking and insurance
What is input and output VAT?
Input VAT = the VAT the trader must pay on his own supplies (water machinery and equipment)
Output VAT = the VAT the trader charges to his customers (window cleaning services)
In what circumstances would a trader make a VAT return?
When input VAT is higher than output VAT, they can be offset and a VAT return can be claimed
Some input VAT cannot be claimed, such as…
Business entertainment
Purchase of car (unless 100% for business)
Traders must register for VAT if they make taxable supplies above the set limit, if in n the previous twelve months, is more than how much?
£85,000
How soon after the annual registration threshold is reached, should a trader notify HMRC?
And when do they then become officially registered?
Within 30 days of the end of the month in which is was exceeded.
Registered the first of the second month after the limit was exceeded.
For example, if the limit is exceeded during April 2023, then notification must be made
by 30 May 2023 and the trader will be registered from 1 June 2023.
If you think your taxable supplies may exceed £85,000 in the next 30 days, how soon should you notify HMRC?
By the end of that 30 day period.
At what point can a business de-register for VAT?
When their taxable turnover falls below £83,000
What is the rate for standard-rated supplies?
20%
Name 4 zero-rated VAT supplies (11)
most food and some drinks
the installation of energy-saving materials up to 31 March 2027;
domestic supplies of water and sewerage;
books and most other publications, such as newspapers, whether published in hard copy
or electronically;
sales of new residential buildings, buildings for use by charities and renovated houses
that have been empty for ten years or more;
supplies of services by contractors when constructing new residential buildings or
buildings for charities;
public transport of passengers;
drugs, medicines and aids for people with disabilities;
clothing and footwear for children;
women’s sanitary products; and
exports of goods and certain services.
Name 3 reduced rate supplies (6)
fuel for domestic use or non-business use by a charity;
contraceptive products;
children’s car seats;
mobility aids for the elderly;
smoking cessation products; and
certain property renovations and conversions.
Name 2 exempt supplies (5)
Insurance, finance, health, education and burial and cremation
services.
How old do leases and sales of commercial land and buildings have to be for them to be zero-rated?
3 years or more
What is the ‘option to tax’ and why might a landlord opt to do it and when?
When landlords make an election to charge VAT on specified land and buildings, that would otherwise be exempt.
They would do it in order to turn it into a taxable supply in the hopes they can recover VAT on related costs.
For example, they buy a new commercial property for £650,000 with the intention of renting it out. Because it is a new commercial property you are automatically charged VAT on the purchase price - £130,000. If you simply rent it out without doing anything you will not be able to claim this VAT back because of the exempt rental income.
However, if you decide to opt to tax the property you would have to charge VAT on the rents to the tenant. In return you could reclaim all the VAT on the purchase, the associated professional costs and any ongoing expenses.
In which circumstances can a partially exempt business recover its input VAT on exempt supplies it’s produced/purchased?
When the total value of the exempt input VAT on exempt supplies is not more than:
1. £625 pm on avg. or;
2. half of its total input VAT in the relevant period
If a trader elects for annual accounting, what payment options do they have with regards to paying the VAT?
Either:
9 monthly payments on account; or
3 quarterly payments on account
Then finally an adjustment on the year end return
When can a trader who makes taxable supplies, elect for annual accounting?
When they make less than £1.35m taxable supplies a year
When can a trader join the cash accounting scheme and why would they?
When they make less than £1.35m taxable supplies a year. It means they don’t have to pay output VAT until the customer actually pays the bill, instead of when invoiced, so if the customer defaults, the the trader isn’t out of pocket.
When do you need to tell HMRC that you want to start using the cash accounting scheme?
You don’t have to tell them at all
What must your annual taxable turnover be for you to joint the flat rate scheme?
Less than £150,000
When is a business a limited cost business?
A limited cost business is one that spends either
less than 2% of its turnover on relevant goods or;
more than 2% of turnover, but less than £1,000 a year, in a VAT quarter.
Which type of business does the 16.5% VAT rate apply to when using the flat rate scheme?
Limited cost business
When can a business no longer operate in the flat rate scheme?
When total business income is over £230,000
