8 - VAT and Corporation Tax

Question 1

What types of input VAT cannot be reclaimed from the HMRC?

Answer 1

Cars unless wholly for business purposes

Business entertainment expenses

Question 2

At what point must a company notify the HMRC for the purposes of VAT & when?

Answer 2

If the value of taxable supplies in the previous 12 months exceeds £85,000
At the end of the month in which the limit is exceeded, they will be registered from the first of the following month.

Question 3

Can a business deregister if its turnover falls below the threshold?

Answer 3

Yes

Question 4

Could a business making zero rated supplies, claim back input VAT on standard rate supplies?

Answer 4

Yes

Question 5

What are examples of zero rated supplies?

Answer 5

Most food and some drink
Domestic water and sewerage
Books and hard copy publications
Sales of new residential buildings, charity buildings and renovated houses that have been empty for 10 years
Contractor services for new residential construction and charity buildings
Public transport
Drugs, aids and medicines for the disabled
Clothing and footwear for children
Womens sanitary products (Jan 21)
Exports of goods and services to Non EU countries

Question 6

What are some examples of supplies at the reduced rate of 5%?

Answer 6

Fuel for domestic use or non-business use by charities
Energy saving installation
Contraception
Child's car seats
Mobility aids for the elderly
Smoking cessation products
Certain property renovations and conversions
Certain suppliers of hospitality

Question 7

What are some examples of exempt supplies?

Answer 7

Insurance, finance, health, education, burial, cremation services
Leases and sales of commercial land and buildings that are more than 3 years old

Question 8

What might be a partially exemot business for VAT?

Answer 8

Where a business makes both exempt anf taxable supplies

Question 9

What is the scheme available for traders who make taxable supplies of £1.35M or less?

Answer 9

Annual accounting - they can elect to make an annual VAT return, with a nine monthly or quarterly payment and a final balancing payment

Question 10

How does cash accounting help a business?

Answer 10

Output VAT is only due when the customer has paid for the goods rather than invoiced therefore aids cashflow (up to a turnover of £1.6M)

Question 11

What is the flat rate scheme?

Answer 11

Allows businesses to calculate VAT as a percentage of taxable turnover
The rate varies according to sector

Question 12

How much VAT would a limited cost business pay as a % under the flat rate scheme?

Answer 12

16.5%

Question 13

What is the criteria for a limited cost business?

Answer 13

One that spends less than 2% of its turnover on goods or more than 2% but less than £1,000

Question 14

Who would not be suitable for the flat rate scheme?

Answer 14

If a business regularly has VAT refunds as they would lose the benefit of claiming the input VAT

Question 15

What is the special margin scheme?

Answer 15

Used by dealers of second hand goods
They only pay VAT of the difference between the price paid and the sold price, rather than the full selling price at 16.67%

Question 16

How often do companies have the submit a VAT return?

Answer 16

Every three months, or monthly for large businesses

By the 7th of the following month (three working days grace is given where payment is made by direct debit)

Question 17

When could a trader claim a refund of VAT for bad debt?

Answer 17

If oayment of the debt is more than 6 months old and has been written off in the business accounts

Question 18

When would VAT be paid on trading within the EU?

Answer 18

On the acquisition of goods from a registered trader in an EU state
For services supplied to a VAT registered business in the UK
Sales to private individuals (not businesses within the EU)

Question 19

On what do companies pay corporation tax?

Answer 19

Trading profits, chargeable gains and investment income

Question 20

What are the differences in the way in which corporation tax is paid?

Answer 20

Charged on strict accounting periods
It is paid on income and chargeable gains - whereas sole traders and partnerships pay seperately under income tax and CGT

Question 21

What is the current rate of corporation tax and how long is the accounting period?

Answer 21

19%

12 months

Question 22

How long does a company have to claim any loss relief?

Answer 22

two years

Question 23

If a company carries back trading losses to the previous accounting year, would they receive a tax refund?

Answer 23

Yes

Question 24

Can a company carry back losses rather than set against the current year?

Answer 24

No, they have to set against the current year first before a carry back claim can be made

Question 25

What are the limits on loss relief if carrying forward?

Answer 25

£5M plus 50% of the profits in excess of £5M

Question 26

Are a company’s chargeable gains eligible for asset disposal relief?

Answer 26

No

Question 27

Can capital losses be set off against trading or investment profits?

Answer 27

No - but can be set against chargeable gains

Question 28

When is corporation tax due?

Answer 28

nine months and one day after the end of the accounting period

Question 29

When must a company submit its tax return?

Answer 29

within twelve monhts of the end of the accounting period

Question 30

What legislation are personal service and managed service companies subject to

Answer 30

Anti avoidance legislation

Question 31

What is a close company?

Answer 31

One that is controlled by 5 or fewer shareholders or by its shareholder directors regardless of number

Question 32

If shareholders are related to each other, how might they be grouped within a close company

Answer 32

As a single person

Question 33

Why is there a tax charge on loads made by a close company to its participators?

Answer 33

As they could enjoy income from loans rather than dividends and avoid paying tax or repaying the loan

Question 34

Paul started trading on 10th April 2020 and his sales have been;
April 2020 £6000

May to July 2020 £11,000 per month
Aug to Nov 2020 £16,000 per month
Dec 2020 to March 21 £22,000

From what date should Paul have bee registered for VAT?

Answer 34

Paul has to register when is taxable supplies during the preceeding 12 month period exceeded £85,000. This happened on the 31st Oct, so should be registered from 1st December

Question 35

What are the possible advantages of using a VAT flat rate scheme?

Answer 35

Using the flat rate scheme means the VAT administration is simplified and there may also be a reduction in VAT payable

Question 36

For the tax year ended 31st March 21, XYZ Ltd has total taxable profits of £500,000. How much coporation tax will be due for the year?

Answer 36

£95,000

Question 37

MNO plc has made up its accounts for the 17 months ended 28 Feb 21. On what accounting periods will corporation tax be charged?

Answer 37

There will be a twelve month accounting period to 30th Sept and a five month to the 28th Feb

Question 38

A company incorporated in Switzerland has a board of directors who are all UK resident. The board meetings are held in the UK. Is the Swiss compnay treated as being UK resident in the Uk?

Answer 38

Since the board of directors are UK based and hold their board meetings in the UK, this would indicate that the Swiss company is managed and controlled from the UK, therefore resident for UK corporation tax