Chapter 1 Flashcards

1
Q

VAT

A

Value added Tax is a tax on the sale of good and services. VAT is on consumer expenditure and is an indirect Tax.

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2
Q

Registration for VAT

A

Businesses must register for charging VAT if their annual taxable turnover reaches the VAT threshold which is currently £85,000. If sales for the previous 12 months exceeds exceeds the current registration threshold or is likely to in the next 30 days, you must register.

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3
Q

Who is VAT paid by?

A

VAT is ultimately paid by the final consumer of the goods and services. VAT is collected by the difference of input vat and output vat of each person in the process. The consumer pays the total vat bill but vat is paid at various stages by the supplier, manufacturer and retailer.

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4
Q

Flow of VAT data

A

Stage 1 - Financial transactions to accounts
Stage 2 - Accounts to VAT return
Stage 3 - VAT return to HMRC

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5
Q

What is on a VAT return?

A

Box 1 - VAT due on Outputs
Box 2 - VAT due on intra-community acquisitions of goods made in N1 from EU member states
Box 3 - Total VAT due (boxes 1 and 2)
Box 4 - VAT reclaimed on inputs including acquisitions from EU
Box 5 - Net VAT to be paid to HMRC (Difference of boxes 3 and 4)
Box 6 - Total value of outputs excluding VAT
Box 7 - Total value of inputs excluding VAT
Box 8 - Total value of intra community dispatches of goods and related costs excluding VAT
Box 9 - Total value of intra community acquisitions of goods and related costs excluding VAT

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6
Q

Exempt supplies

A

There are goods and services on which on VAT is charged. Eg membership subscriptions , insurance and charitable donations. VAT cannot be reclaim either on these goods and services. Also g/s can be outside the scope of VAT so VAT cannot be charged or reclaimed on them.

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7
Q

Sources of VAT information

A

VAT information online, VAT information - paper based sources and other sources like attending relevant continuing professional development updates (CPD).

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8
Q

VAT registration - Historic turnover test

A

If at the end of any month taxable supplies over the last 12 months has exceeded the VAT registrstion threshold (£85,000) the business must notify HMRC within 30 days of the end of the next month. Registration is then effective from the first day of the second month after the threshold is exceeded. This is the historic turnover test

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9
Q

VAT registration - Future turnover test

A

When annual taxable turnover is expected to exceed the VAT registration threshold during the next 30 days, the business must register before the end of the 30 day period. Registration is then effective from the start of the 30 day period.

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10
Q

Failure to register

A

A business that fails to register when it is required to do so may face a civil penalty for failure to notify. This is calculated as a percentage of the potential lost revenue. This percentage depends on wether the failure to register was deliberate or not, wether the business was prompted by HMRC to register and how long it is since the VAT was due.

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11
Q

Failure to register on time

A

If HMRC discovers that a business has not registered for VAT when it should have done, it will treat the business as though it had registered on time and will expect VAT to be accounted for as if it had been charged. The business has two choices in respect of VAT: Allow HMRC to treat invoices as VAT inclusive and absorb the VAT or account for VAT as an addition to the charges already invoiced and attempt to recover this from its customers

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12
Q

Who should register for VAT?

A

An individual or organisation that is in business is known as a taxable person and should register for VAT. Taxable person includes sole traders, partnerships, limited companies, clubs and associations and charities.

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13
Q

Taking over a going concern

A

If you intend to take over a business that is already a going concern and the total turnover of this business and your business exceeds the VAT registration threshold then you must be registered for VAT from the day that the business is transferred to you.

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14
Q

Exception from registration if threshold is temporarily exceeded.

A

If the taxable turnover of a business may exceed the VAT threshold temporarily, the business must write to HMRC with evidence as to why it believes its VAT taxable turnover will not go over the deregistration threshold (£83,000) in the next 12 months. If the business does not notify HMRC within 30 days, it will not be able to request an exception. Instead it will have to register and then apply to be de-registered.

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15
Q

Business or not a business?

A

A taxable person is in business when they earn an income by carry out a trade, provide membership benefits in a return for a subscription, carry out activities as a charity. Also theses activities must be carried out regularly and over a period of time. This would exclude hobbies even if they involve buying and selling. If you occasionally sold items on eBay this would not be considered a business activity. However, if this was frequent then you would classify as a business.

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16
Q

Voluntary registration

A

A business may voluntarily register for VAT, even if they are not required to do so. This is normally done because the business will benefit from claiming back input vat on purchases.

This benefits businesses that sells zero rated goods as they will not have to include output VAT on sales and they can gain money back from input tax.

If a business that supplies standard or reduced supplies decides to register for VAT voluntarily, this will increase the cost to any customers who are not VAT registered.

17
Q

Practicalities of registration

A

Registration can be carried out online or by downloading and completing the forms.

When registered, a registration certificate will be issued giving full details of registration, including the VAT number which must be quoted on VAT invoices issued by the business.

VAT paid when setting up the business can normally be reclaimed.

18
Q

Changes to VAT registration

A

A business must notify HMRC within 30 days of any change in information apart from bank account details which is 14 days in advance.

19
Q

Voluntary deregistration

A

If a business finds its annual taxable turnover (or is likely) to fall below £83,000, the business can choose to voluntarily deregister for VAT, if it feels it is beneficial to do so, Eg sole trader running down the business before retirement. The business must provide evidence that they will next exceed the £83,000 in the next 12 months. Deregistration is effective from the HMRC receives the request or an agreed later date.

20
Q

Business records to be kept

A

HMRC requires all VAT registered businesses should maintain a full set of accurate business records.

The records that should be maintained include: Annual accounts including the statement of profit or loss, VAT accounts, Ledger Accounts, Cash book, Sales and purchases day books, Sales invoices and purchases invoices, credit or debit notes issued or received, bank statements and import and export documentation.

21
Q

Storage of VAT records

A

Businesses are permitted to store VAT records electronically for the required six years. This is apart of the Making tax digital.

22
Q

Control visits and inspections

A

The frequency of a VAT visit will depend on how large or complex the business is. HMRC will normally give a business seven days notice of a visit and will confirm what information the VAT officers will want to see, how long it will take and if they want to inspect the business premises. If necessary, the business can ask for the visit to be delayed.

HMRC can also visit without an appointment and may also telephone a business about its VAT.

They will examine the VAT records and ask questions of the business owner or the person responsible for the VAT records. A visit may take as little as a few hours or may last several days depending on the nature of the business.