Chapter 13 VAT general principles

Question 1

13.1 General principles of VAT

Answer 1

Basic principle is to charge VAT at each stage in the supply of goods and services (output VAT). If the customer is registered for VAT and uses the supplies for taxable business purposes, they receive credit for this VAT (input VAT). Normally VAT is borne by the final customer and not the business. 20% is the standard rate of VAT, there are other VAT rates however.

Question 2

13.2 The VAT fraction

Answer 2

VAT exclusive is the selling price of an item without any consideration of VAT. VAT inclusive includes the VAT in the selling price. By using the VAT fraction of 1/6 we can find the VAT of any item.

Question 3

13.3 Output Tax

Answer 3

Output tax is the VAT due on taxable supplies and is the liability of the person making the supply, meaning the seller must pay over the VAT to HMRC.

Question 4

13.4 Input Tax

Answer 4

A taxable person is entitled to reclaim input tax incurred on goods and services supplied to him, provided that the input tax relates to taxable business supplies made by him in the course of business. Taxable supplies are those chargeable at the standard rate, the reduced rate or the zero rate.

Question 5

13.5 Exempt supplies

Answer 5

Certain supplies are exempt from VAT. This means that no VAT is chargeable but, unlike zero-rated supplies, related input tax is not recoverable.

Question 6

13.6 Returns and payment of VAT

Answer 6

Every taxable person must submit a VAT return (VAT 100) declaring the output ta and input tax for each VAT period. A VAT period is normally three months but a one-month period is allowed, particularly where input VAT is likely to regularly exceed output VAT.
The return is submitted to HMRC no later than one month and seven days after the end of the period. All businesses must file VAT returns online and pay VAT electronically.