Chapter 21 - VAT

Question 1

What are registered traders able to deduct?

Answer 1

Input tax on purchases from VAT they charge customers (output tax) and pay/recover the difference to/from HMRC

Question 2

What are some examples of zero rated supplies?

Answer 2

1) Non-Luxury Food
2) Books, newspapers
3) Protective clothing
4) Work on listed buildings being used for residential or charitable use
5) Transport of good & passengers
6) Animal food
7) Exports from UK
8) Sewerage and water
9) New dwellings
10) Childrens clothes and shoes

Question 3

Can traders of exclusively exempt supplies register for VAT or recover input tax?

Answer 3

No

Question 4

What is VAT based on?

Answer 4

Turnover, not profit

Question 5

What is domestic fuel and power charged at?

Answer 5

5%

Question 6

What are examples of Main Zero-Rated supplies?

Answer 6

1) Financial Services
2) Betting and gaming
3) Not for profit education and vocational training
4) Entry fees for non-profit making sports competitions
5) Insurance
6) Health Services
7) Burial and cremation services

Question 7

What are the 3 components of the historical test to determine compulsory VAT registration?

Answer 7

1) If taxable supplies in any period up to the previous 12 months exceed £85,000
2) Trader as 30 days from end of month in which limit is breached to notify HMRC
3) Registration applied from start of month, one month after the limit is breached

Question 8

What are the 3 components of the future test for compulsory VAT registration?

Answer 8

1) If trader anticipated sales exceeding 85,000 in the next 30 days alone
2) Trader has 30 days to notify HMRC (big order placed on 1 July, HMRC must be notified by 30 July)
3) VAT charged from start of the period (1 july in example above)

Question 9

What are four benefits of voluntary registration for VAT?

Answer 9

1) Allows recovery of input tax
2) Disguises size of business
3) Removes need to check turnover every month
4) Introduces discipline to record keeping of business

Question 10

What three stipulations make recovery of pre-registration input tax possible?

Answer 10

1) Goods supplied in previous 4 years are still in stock at date of registration
2) Non current asset purchases in previous 4 years is still in use by business at date of registration
3) Service was supplied to trader within 6 months prior to date of registration

Question 11

What three reason might cause a trader to de-registered for VAT?

Answer 11

1) A trader can de-register if taxable supplies in the next 12 months will not exceed 83,000
2) Compulsory if no longer making taxable supplies
3) Registration cancelled if legal status change (sole trader to partnership)

Question 12

When would output VAT need to be accounted for on sale of assets after the cessation of trade?

Answer 12

1) If input tax was claimed on the purchase of those assets and the VAT on sale is >1,000

Question 13

How long is a VAT period?

Answer 13

3 months long

Question 14

When must a VAT return be submitted online?

Answer 14

One month and seven days after the end of the return period. This is usually the due date for any VAT payment.

Question 15

When is the basic tax point for VAT?

Answer 15

is the date of the supply of goods/services

Question 16

Give three examples of why the basic tax point (BTP) would be superseded by an actual tax point (ATP)?

Answer 16

1) Payment date becomes ATP if it is received before the BTP
2) Invoice date becomes the ATP if it is used before the BTP
3) If an invoice is issued within 14 days of the BTP, the invoice issue date becomes the ATP

Question 17

When must a person registered for VAT supply the invoice?

Answer 17

Within 30 days of the time of supply and must keep a copy

Question 18

What 7 things must a VAT invoice invoice include?

Answer 18

1) Suppliers name, address and VAT registration number
2) Customers name and address
3) Each item - description, quantity, unit price, rate of VAT and VAT exclusive amount
4) Total VAT
5) Date of issue, tax point and invoice number
6) Rate of cash discount
7) Invoice price excluding VAT

Question 19

When might a simplified VAT invoice be issued?

Answer 19

If VAT inclusive total of invoice is less than £250

Question 20

What are two examples of expenses that are not VAT recoverable (irrecoverable VAT)?

Answer 20

1) VAT on cars (unless taxi, self drive hire car, driving school)
2) Business entertaining for UK Customers (staff and overseas customers is recoverable)

Question 21

Can you include irrecoverable input VAT in costs for income tax and capital allowances?

Answer 21

Yes - car costs 10,000 plus VAT will have capital allowances on 12,000

Question 22

When is relief for impairment losses available?

Answer 22

6 months after the due date provided the trader has written the debt off

Question 23

When must a claim for impairment relief losses be made?

Answer 23

Within four years and six months of the payment being due

Question 24

How is impairment relief accounted for?

Answer 24

As an increase in input tax, rather than an reduction in output tax

Question 25

What is Input Tax?

Answer 25

What a business pays for goods and services in order for their business to operate

Question 26

What is the points based system of late filing?

Answer 26

A penalty point is given each time a quarterly VAT return is submitted late - threshold of 4 points is reached, £200 penalty is charged. Points expire after two years if threshold has not been reached.

Question 27

What happens if a business is fined £200 for late fillings and they submit late again?

Answer 27

Immediate 200 pound fine on every late submission. If company submits on time returns for 12 months, points are reset to zero.

Question 28

Proforma for late payment of penalties for VAT returns up to 15 days late?

Answer 28

Penalty - None
Daily Penalty - No
Interest - Yes

Question 29

Proforma for late payment of penalties for VAT returns up to 16 and 30 days late?

Answer 29

Penalty - 2%
Daily Penalty - No
Interest - yes

Question 30

Proforma for late payment of penalties for VAT returns more than 30 days late?

Answer 30

Penalty - 4%
Daily rate - Yes (4%)
Interest - Yes

Question 31

Are taxpayers penalised if genuine mistake in VAT return?

Answer 31

No

Question 32

In the annual accounting scheme, when are payments on account due?

Answer 32

At the end of months four to 12

Question 33

How much is each payment on account under the annual accounting scheme?

Answer 33

10% of VAT liability for previous year

Question 34

Does the flat rate scheme include Zero rated and exempt sales?

Answer 34

Yes