Chapter 2 Flashcards
What is VAT?
An indirect tax, charged on most goods and services within the UK, is born by the final consumer, it’s collected by businesses on behalf of HM revenue
Define taxable person
Taxable persons are businesses which are should be registered for VAT
What must a Business do if it’s registered for tax.
Charge VAT on its sales or services to its customer
Recover the VAT charged and it’s purchased expenses rather than having to buy the cost
What happens if a business is not registered for VAT?
Then the cost to purchase an expenses must include the VAT as these amounts are said to be irrecoverable… the cost of the business businesses are entered in the books as they’re gross and there is no VAT account
What is output VAT?
The VAT charged on sales or taxable supplies
Define input tax
VAT paid by person on purchases are expenses
What are the different rates of VAT?
The standard rate at 20% in the zero rate 0%.
What does zero rate of VAT apply to?
Food, drink books, newspapers, children’s clothes and transport
What happens if a business is registered for VAT and sells zero rated products or services?
It charges no VAT on the sales but can still reclaim input VAT on its purchases and expenses… normally owed VAT by HMRC
If a business sells such services that air exempt from VAT such as financial postal services then…
Not only is no VAT charged on the sales of the business, but also no input tax can be reclaimed on purchases and expenses
What are the three types of discount?
Trade bulk and prompt payment discount
What is a trade discount?
Definite man that is deducted from the price list for the supplies of some customers to encourage rewarding loyalty
