Business Taxation - VAT (2) Flashcards
What is value added tax?
Value Added Tax: VAT is a tax levied on the supply of goods and services (VAT Act 1994).
Who needs to pay value added tax?
Application of VAT
Application of VAT: VAT will only apply to a taxable supply of goods and services made by a taxable person in the course or furtherance of business.
(1) Taxable Supply: VAT is levied on the total value of the good or service before VAT, unless it is an ‘exempt supply’.
Exempt Supply: I.e. residential land, post, education, health, insurance etc.
Price: The price of goods is inclusive of VAT when presented to consumers (unless stated).
(2) Taxable Person: Taxable persons are those registered under the VAT Act 1994.
Compulsory: Persons must register if gross value of taxable supplies exceeded £90,000 in last 12 months.
Voluntary: Persons may voluntarily register, usually to reclaim input tax.
(3) Course or Furtherance of Business: The supply must be made in the course or furtherance of a trade, profession or business. This means charities are exempt from VAT (s94).
What is the tax rate for VAT?
Rate of Tax: The rate of VAT levied on a good or service will differ by each individual good or service.
(1) Standard Rate: Typically, items are charged at 20%.
(2) Reduced Rate: Some items are charged at 5% (i.e. fuel, books, protective equipment).
(3) Zero Rate: Some items are charged at 0% (i.e. bread, milk, vegetables).
>Means taxable persons can offset input tax against them.
(4) Exempt: Some items are exempt. If a business has fully exempt supplies, it cannot register for VAT purposes.
How is VAT calculated?
VAT Calculation: Taxable persons pay HMRC the aggregate of ‘output tax’ minus ‘input tax’.
(1) Output Tax: This is the VAT the business has earned on its own supplies.
(2) Input Tax: This is the VAT the business has paid on supplies it has purchased for the sake of business.
What is the payment procedure for VAT?
Payment Procedure: Taxable persons must provide a Tax Return and evidence of Tax Invoices alongside payment.
(1) Tax Invoice: Taxable persons must supply a tax invoice to other taxable persons, detailing the VAT number, value of supply, and rate of VAT charged.
(2) Date of Payment: Tax returns and payment must be made 1 month from the end of each quarter during the tax year. In some instances, HMRC will permit or require monthly payments instead.
(3) Late Payment: Late or failed payments can constitute criminal and civil offences. Interest will usually be levied.
