AAT E-Learning

Question 1

Reclaiming VAT on items bought before VAT registration?

Answer 1

General rule 4 years.

Goods must:
1. Be bought by entity that is now registered.
2. Be used for taxable (not exempt) business purposes.
3. Still be held by the business, or used to make other goods still held.
Eg. Office equipment and goods for resale.

Services must:
1. Be bought by the entity that is now VAT registered.
2. Be used for taxable (not exempt) business purposes.
Eg. Legal and Accountancy services.

Question 2

When VAT cannot be reclaimed

Answer 2

• Goods and services that are for non-business or personal use.
• Business client entertaining.
• Car (with a few exceptions)
• Goods and services that relate to exempt supplies.

Question 3

If Business only makes exempt supplies…

Answer 3

Cannot register for VAT.

Eg. Charities and education providers.

Question 4

If business sells a mix of taxable and exempt they are known as ‘Partially exempt’ businesses. Rules are…

Answer 4

Purchases that relate to exempt supplies = Exempt input VAT.

*If Amount of ‘Exempt Input VAT’ is below ‘de minimus’
Then Exempt Input VAT can be reclaimed in full.

*If Amount of ‘Exempt Input VAT’ is above ‘de minimus’
Then Exempt Input VAT cannot be reclaimed.

Question 5

De minimus

Answer 5

1. Exempt Input VAT must be less than £625/month on Average.

2. Exempt Input VAT must be < half of total input VAT claimed.

Question 6

Business entertaining cannot be claimed except

Answer 6

Can claim vat on employee entertaining if relate to travel and subsistence or where the biz entertains employees only.

If both employees and non-employees biz can reclaim proportion that relates to employees.

Exception is vat can be reclaimed in respect of entertaining overseas customers (not Isle of Man)

Question 7

Note about directors in respect of reclaiming VAT?

Answer 7

They are not employees so can’t reclaim vat on entertaining them.

Question 8

Exceptions for reclaiming vat on purchase of a car.

NB If a business IS able to reclaim it must also charge on sale

Answer 8

VAT may be claimed if used MAINLY by:

A taxi driver.
A driving instructor.
Where business is renting out cars.

Question 9

Commercial vehicles

Answer 9

If VAT registered biz buys a commercial vehicle and uses it for biz purpose they can usually reclaim VAT

Question 10

Fuel for VAT registered biz can be dealt in 4 ways:

Answer 10

If fuel is used biz purpose only then reclaim all VAT.

If fuel used biz and private, reclaim all VAT and pay Fuel Scale Charge.
(Depends on CO2 omissions and added to output VAT box 1)

If fuel both biz and private, reclaim only VAT on biz miles proportion.
(Accurate mileage records must be kept).

Do not reclaim any VAT

Question 11

Bad debt relief - rules

Answer 11

• Debt is more than 6 months and less than 4y 6m old.
• Debt has been written off in VAT account and transferred to separate bad debt account.
• Debt has not been sold or handed to factoring company.
• Business did not charge more than normal selling price for items.
• Output tax has been accounted for and paid. (Ie only reclaiming what has been paid!)

Question 12

Bad debt relief - how to claim

Answer 12

Add VAT amount to amount being reclaimed on Purchases (input tax) and put total in Box 4

Question 13

Extra bad debt rules

Answer 13

No requirement for formal notice of customer ceasing trading.

Question 14

Registration compulsory if turnover of taxable supplies in uk..

Answer 14

For the past 12 months is more than VAT registration limit of £85k.

The biz expects to go over the £85k threshold in a single 30 day period.

Question 15

VAT invoice must show…

Answer 15

1. Invoice number (unique and in sequence)
2. Invoice date and tax point.
3. Sellers name, address and VAT no.
4. Customers name and address.
5. Qty, description, ex vat price and VAT Rate.

Question 16

Simplified VAT invoice rule

Answer 16

Less than £250 INCLUDING vat

Question 17

Simplified VAT invoice must include

Answer 17

(No invoice number)
Sellers name and address.
Sellers VAT number.
(No customer name and address)
Date or tax point.
Description of goods or services.
Total amount including VAT

(No total amount of VAT needed)

Question 18

Additional info on a PP discount invoice where not issuing a CN.

Answer 18

The terms of the discount-rate time.

A statement that the customer can only recover VAT on am’t paid.

Question 19

3 options PP disc

Answer 19

1. Invoice full and CN if taken.
2. Invoice full with statement.
3. Invoice discounted amount and a second invoice fir disc. if not paid.