Chapter 1 Flashcards
VAT
Value added Tax is a tax on the sale of good and services. VAT is on consumer expenditure and is an indirect Tax.
Registration for VAT
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.
Who is VAT paid by?
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.
Flow of VAT data
Stage 1 - Financial transactions to accounts
Stage 2 - Accounts to VAT return
Stage 3 - VAT return to HMRC
What is on a VAT return?
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
Exempt supplies
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.
Sources of VAT information
VAT information online, VAT information - paper based sources and other sources like attending relevant continuing professional development updates (CPD).
VAT registration - Historic turnover test
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
VAT registration - Future turnover test
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.
Failure to register
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.
Failure to register on time
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
Who should register for VAT?
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.
Taking over a going concern
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.
Exception from registration if threshold is temporarily exceeded.
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.
Business or not a business?
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.