CH 8 - VAT & Corporation Tax Flashcards
What is VAT charged on?
Taxable goods and services in the UK and purchases in EU
Services are treated as being supplied in which country?
Where the customer is situated
Who administers VAT?
HMRC
What are the different rates of VAT?
- Zero
- Reduced rate 5%
- Standard rate 20%
Name some supplies that are exempt from VAT?
- Insurance
- Finance
- Health
- Education
- Burial and cremation services
- Leases and sales of commercial land and buildings that are more than 3 years old
What is output VAT charged on?
VAT traders charge customers output VAT on taxable supplies of goods and services
What is input VAT?
The VAT the trader paid for the goods and services purchased (can be offset against output VAT they owe)
What VAT input cannot be reclaimed?
Purchasing cars and business entertainment purposes
When must a trader register for VAT?
Taxable supplies more than £85,000 in previous 12 months
When must a trader notify HMRC that the £85k limit was exceeded?
Within 30 days of the end of the month in which limit was exceeded
When is a trader VAT registered?
From the 1st day of the 2nd month after exceeding limit
If a trader is expecting to exceed £85k limit within next 30 days, what must they do?
Notify HMRC before end of 30 day period
Can a trader with low level of taxable supplies voluntarily register for VAT?
Yes
When can a trader deregister for VAT?
When taxable turnover falls below £83,000
Give examples of zero rated supplies
- Most food and some drinks (except catering, restaurants etc)
- Domestic supplies of water and sewerage
- Books and publications
- Sales of new residential buildings, buildings used by charities and renovated houses that have been empty for 10 years or more
- Supplies of services by contractors, when constructing new residential buildings or buildings for charities
- Public transport
- Drugs, medicines and aids for the disabled
- Clothing/footwear for children
- Women’s sanitary products
- Exports of goods and certain services to non-EU countries
Give examples of reduced-rate supplies (5%)
- Fuel for domestic use or non-business by a charity
- The installation of energy-saving materials
- Contraceptive products
- Children’s car seats
- Mobility aids for the elderly
- Smoking cessation products
- Certain property renovations/conversions
- Certain supplies of hospitality
Give examples of reduced-rate supplies (5%)
- Fuel for domestic use or non-business by a charity
- The installation of energy-saving materials
- Contraceptive products
- Children’s car seats
- Mobility aids for the elderly
- Smoking cessation products
- Certain property renovations/conversions
- Certain supplies of hospitality
Give examples of reduced-rate supplies (5%)
- Fuel for domestic use or non-business by a charity
- The installation of energy-saving materials
- Contraceptive products
- Children’s car seats
- Mobility aids for the elderly
- Smoking cessation products
- Certain property renovations/conversions
- Certain supplies of hospitality
When can a partially exempt business reclaim its input VAT?
If total value of exempt input VAT is not more than:
- £625 p/mo
- Half of its total input
Traders that make taxable supplies of £1.35m or less can do what?
- Use cash accounting
- Can elect to complete annual return
How does the cash accounting method affect when output VAT is due?
Due when customer pays, not when item is sold
When can a trader use cash accounting until? (taxable turnover amount)
£1.6m
What is the Flat Rate Scheme?
Allows small businesses to account for VAT as % of taxable turnover (simplifies calculations)
What is the flat rate % for limited cost traders/businesses?
16.5% applies to limited cost traders
What is the maximum annual turnover to qualify for the Flat Rate Scheme?
£150,000
What is the flat rate calculated on?
business’s sales plus the VAT (120%)
What is a margin scheme?
Used for second hand dealers - VAT is due on difference between price paid/price sold for
What is the rate of VAT for margin scheme?
16.67% on difference between price bought/sold
Normally, VAT returns are submitted and paid how often?
Every 3 months
Traders that regularly reclaim VAT can submit returns how often?
monthly
What is the MTD programme?
Software for providing VAT returns digitally
Returns must be submitted by when under MTD?
By the 7th day of the month after the month following the VAT period
What is bad debt relief?
Account for VAT at date the sale takes place (tax point) - if customer doesn’t pay then no immediate relief for trader
When does a customer pay VAT on EU imported goods?
Customer accounts for tax on their next returns (enter output VAT figure)
What three things are corporation tax payable on?
Company’s trading profits, investment income and chargeable gains
Are dividends from other companies included in corporation tax calculations?
No
Corporation tax rates are set for what period?
Full financial year 1st Apr - 31st March
What is the rate of corporation tax?
19%
What happens if a company’s accounting period straddles two financial year’s?
Profits apportioned
Accounting periods cannot be longer than what for corporation tax?
12 mo
What are the stages of calculating corporation tax?
1) Calculate tax adjusted trading profit (net profit + non deductible expenses - non trading income - tax allowances/trading losses)
2) Add income from other sources and chargeable gains
3) Deduct any reliefs
Loss relief can be claimed and then carried forward for how many years?
Claimed within 2 years from loss-making period and carried forward indefinitely
Losses must be set against the current year/previous year in which order?
Current year first before carrying back
Loss relief is restricted when profits exceed what?
£5m
relief restricted to £5m + 50% of profit over £5m
Gains and losses are calculated according to what rules?
CGT rules (but not paid as separate tax)
Indexation allowance was calculated on gains up to which date?
Dec 2017
Chargeable losses cannot be offset against what?
Trading profit or investment income (but can be set against chargeable gains)
When is corporation tax due?
Due and payable 9 months and 1 day after end of accounting period
When is the corporation tax return due?
12 months after end of accounting period
Large companies with a profit over £1.5m must make their VAT returns, how often?
Quarterly
Are payment of a dividends to shareholders a deductible expense?
No - paid from post-tax profits
What is a close company?
Controlled by 5 or less shareholders or by only its shareholder-directors
What is the tax charge on loans by close companies to properieter/participants?
None
Are all companies that are UK residence liable to UK corporation tax?
Yes
Companies incorporated overseas are classed as UK resident if what?
Central management and control takes place in the UK
