Accounting for VAT

Question 1

2 - Discounts

2 types of discounts?

Answer 1

• Trade and PPD.

PPD = Promt Payment Discount

Question 2

2 - Discounts

Trade Discount DEFINITION?

Answer 2

• Discount given at time of sale/purchase to induce to purchase.

Question 3

2 - Discounts

Who is trade discount offered to?

Answer 3

• Regular customers and bulk buyers.

Question 4

2 - Discounts

Benefits of trade discount?

Answer 4

• Promotes customer loyalty.

Question 5

2 - Discounts

Prompt Payment DEFINITION?

Answer 5

• Reduced price as an inducement to pay earlier than agreed credit terms.

Question 6

2 - Discounts

Benefits of PPD to supplier?

Answer 6

• Help with cashflow.
• Incentive to ensure payments are actually received.

Question 7

2 - Discounts

2 ways PPD is achieved?

Answer 7

• Invoice full amount, followed by credit note if discount taken.
• Issue one invoice, with both prices and VAT amounts specified; clarifying to customer recoverability of their input VAT

Question 8

3 - Credit and Debit Notes

What does a credit note do?

Answer 8

• Credit note offsets all or part of invoice (including VAT element).

(If supplier has overcharged or customer has returned goods.)

Alternatively, customer can raise debit note.

Question 9

3 - Credit and Debit Notes

Why must a credit note be raised?

(As opposed to amending an invoice).

Answer 9

• Amending a VAT invoice can be seen as an act of fraud.

Question 10

3 - Credit and Debit Notes

When is an additional invoice raised?

Answer 10

• When supplier has charged too little.

Question 11

4 - Tax Point

Tax Point DEFINITION?

Answer 11

• The date which determines when the VAT must be accounted to HMRC.

Question 12

4 - Tax Point

What is the basic tax point?

Answer 12

• Date goods are despatched/available/services completed.

Question 13

4 - Tax Point

Which 3 dates need to be identified when determining tax point?

Answer 13

• Basic tax point
• Invoice date
• Payment date

Question 14

4 - Tax Point

When does basic tax point apply?

Answer 14

• When basic tax point comes before invoice and payment date;
• AND invoice date NOT within 14 days of basic tax point.

Question 15

4 - Tax Point

When is basic tax point overridden?

Reffered to as ‘actual tax point’.

Answer 15

• Invoice/payment date = before basic tax point (whichever is earlier is actual tax point).
• If basic tax point is earliest BUT invoice date is within 14 days (actual tax point = invoice date).

Question 16

4 - Tax Point

Circumstances of tax point with regards to ongoing services (over a month)?

E.g. Bookkeeping.

Answer 16

• Tax point is earliest of invoice/payment date.

(May just be referred to as ‘tax point’).

Question 17

4 - Tax Point

Circumstances of tax point with regards to ‘sale or return’ basis?

Answer 17

Basic tax point amended to earliest of:

• Goods being accepted by customer;
• 12 months after physical delivery.