Chapter 25 - VAT: Outline Flashcards
Is VAT direct or indirect?
Indirect
What is VAT charged on?
Most goods and services in the UK
Who is VAT suffered by?
The final consumer
Who collects VAT?
By the business on behalf of HMRC
What are the three essential needed before VAT can be charged?
- Taxable person
- Taxable supply
- Business
What is a person who is or should be registered for VAT, because they make taxable supplies
A taxable person
What can a taxable person be?
An individual or a legal person such as a company
What is is everything which is not exempt or outside the scope of VAT. It includes sales and purchases of most goods or services.
Taxable supply
Is input tax payable or recoverable from HMRC?
Recoverable
Is output tax payable or recoverable from HMRC?
Payable
What three things can supply be?
- Taxable
- Exempt
- Outside the scope of VAT
What kind of supply is taken into account when determining whether a company should register for VAT.
Taxable supply
Is input VAT related to exempt supplies recoverable?
No
What are the three rates taxable supplies are charged at?
- Zero rate
- Reduced rate
- Standard rate
Can you charge VAT on exempt supplies?
No
Can you reclaim input VAT on exempt supplies?
No
Can you register for VAT on exempt supplies?
No
Can you charge VAT on Zero rated supplies?
Yes at 0%
Can you reclaim input VAT on zero rated supplies?
Yes
Can you register for VAT on zero rated supplies?
Yes
Name the six book examples of exempt supplies.
- Land
- Postal services
- Financial services
- Education
- Insurance
- Sports (entry fees)
Name the seven book examples of zero rated supplies.
- Children’s clothing
- Non-luxury food
- Books
- Medicines
- Transport
- Exports outside the EU
- Gifts to charities
What are the two tests for compulsory registration?
- Historic turnover test
- Future prospects test
When must you notify HMRC of registration with the Historic turnover test?
Within 30 days of the end of the month in which the registration threshold is exceeded.
By when is registration effective for the historic turnover test?
Registration is effective from the first day of the second month after the taxable supplies exceed the threshold.
When does a trader need not register after the historic turnover test?
- If supplies are not expected to exceed 83,000
- If their supplies are wholly zero rated.
When do you use the future prospects test?
When taxable supplies in the next 30 days in isolation are expected to exceed £85,000
When must HMRC be notified if you pass the future prospects test?
Before the end of the 30 days
From when will registration will be effective with the future prospects test?
From the beginning of the 30 day period.
Once registered for VAT, Output tax must be charged on…
Taxable supplies
What must be quoted on all invoices?
The traders VAT registration number
How long is the traders tax period (usually)
3 months
What is input tax recoverable on?
Business purchases and expenses
What must be maintained once registered for VAT?
Appropriate VAT records
What are the three advantages of voluntary registration?
- Avoids penalties for late registration.
- Can recover input VAT on purchases.
- Can disguise the small size of the business.
What are the two disadvantages of voluntary registration?
- Business will suffer the burden of compliance with all VAT administration rules.
- Business must charge VAT. This makes their goods comparatively more expensive than an unregistered business, for customers who cannot recover the VAT (i.e. final consumers).
When is voluntary registration beneficial?
When the business is making
- zero rated supplies and has input VAT that it can recover, or
- supplies to VAT registered customers
When is voluntary registration not beneficial?
When the business is making
-Supplies to non-VAT registered customers
Do all members of a group have to join a VAT group?
No
Is there a need to account for VAT in intra-group supplies?
No
Are all members of a group liable for VAT?
Yes
What are the two advantages of group VAT registration?
- VAT on intra-group supplies eliminated
- Only one VAT return required, which should save administration costs
What are the two disadvantages of group VAT registration?
- All members remain jointly and severally liable
- A single return may cause administrative difficulties collecting and collating information.
What are the conditions for recovery of pre-registration input VAT on goods?
- The goods must be acquired for business purposes and should not be sold or consumed prior to registration (e.g. should still be in inventory).
- The goods have not been acquired more than four years prior to registration.
What are the conditions for recovery of pre-registration input VAT on services?
- The services must be supplied for business purposes.
- The services should not have been supplied more than six months prior to registration.
When must someone de-register?
When they cease to make taxable supplies.
When should HMRC be notified of de-registration?
HMRC should be notified within 30 days of ceasing to make taxable supplies.
When is VAT regsitration cancelled?
VAT registration is cancelled from the date of cessation.
When is the final tax liability waived on deregistartion?
When it is £1000 or less.`
When does compulsory de-registration occur?
When a business is sold or otherwise transferred as a going concern to new owners
What are the two ways sale of a business may be treated?
- Normal taxable supply
- Transfer of a going concern
What is the result of a business being treated as going concern?
- Not treated as taxable supply
- No output tax charged on assets transferred by seller
- No input tax recoverable by the purchaser
What are the conditions for a business to be treated as a going concern?
- The business is transferred as a going concern.
- There is no significant break in the trading.
- The same type of trade is carried on after the transfer. -The new owner is or is liable to be registered for VAT, immediately after the transfer.
What is the basic tax point for goods?
When they are collected, delivered or made available by the customer.
What is the basic tax point for services?
-When they are performed
What may the basic tax point be overridden by?
The actual tax point
What is step 2 of calculating the actual tax point?
Ask…
On or before BTP has…
- A tax invoice been received? , or
- A payment been received?
If yes
=The earlier date
=Compulsory ruling
What is step 3 of calculating the actual tax point?
Ask…
Has a tax invoice been issued within 14 days of BTP?
If NO
ATP=BTP
If YES
ATP = invoice date
What are the three tax point special rules?
- Goods on sale or return
- Continuous supplies
- Sales under hire purchase
What is the time supply for Goods on sale or return?
earlier of:
– the date when the goods are adopted by the customer, or
– 12 months after the despatch of the goods.
What is the time supply for Continuous supplies?
earlier of:
– a tax invoice being issued, and
–a payment received
What is the time supply for Sales under hire purchase?
When they are collected, delivered or made available by the customer.
What is the basic rule for value of taxable supply?
The value of a taxable supply is the amount on which the VAT charge is based. This is normally the price (before VAT) charged by the supplier.
When there is a discount offered, what is the VAT calculated on?
The price paid by the customer
If a supplier does not know whether a prompt payment discount will be taken advantage of, what do they do?
Charge VAT on the full amount.
If a supplier charged full price and then later the customer takes advantage of a prompt payment discount, what do they do?
- Issue a credit note if the discount is taken, or
- Adjust their records to account for output tax on the amount received.
Where the trader initially purchased the goods for private purposes, can you claim input VAT and is there an Output VAT charge?
No input VAT can be reclaimed and there is no output VAT charge.
Where the trader withdraws goods which were purchased for business purposes, can input VAT be recovered?
Yes
Where the trader withdraws goods which were purchased for business purposes, how must output VAT be accounted for?
Output VAT must be accounted for on the replacement value of the supplies.
Gifts of inventory or non-current assets are treated as taxable supplies at replacement cost. What are the two exeptions?
- Goods to the same person which cost the trader £50 (excluding VAT) or less in a 12 month period.
- Business samples, regardless of the number of same samples given to the recipient.
Are gifts of services, whether to employees or customers taxable supplies
No
What can a taxable person claim VAT back on?
Goods and services which are supplied to them for business purposes.
What is needed to support a claim for recovery of input VAT?
A VAT invoice
For VAT purposes is there a distinction between capital and revenue expenditure?
No
If capital assets are subsequently sold, output VAT must be charged as….
A taxable supply
What are the two goods and services that input VAT cannot be recovered on?
- Business entertaining (e.g. entertaining suppliers and U.K. customers)
- Motor cars
When can Input VAT be recovered on Business entertaining?
-Entertaining overseas customers
When can Input VAT be recovered on motor cars?
- used 100% for business purposes (e.g. driving school cars), in which case 100% recovery available, or
- leased, in which case 50% of input VAT is recoverable where the car has some private use.
Is any output tax due on disposal of a motor car?
No
How do you calculate VAT on goods or services that are partly for personal use?
Apportionment
Not for motor expenses
Can a business recover input VAT on the running costs of a car even when there is some private use?
Yes, all of it
Is VAT charged on Insurance or a road fund license?
No
If a business pays for the fuel cost for an employee can they recover input VAT?
Yes
If there is some business use of the car and the driver reimburses the business for full cost of fuel for private journeys what happens?
Output VAT is payable on the Amount reimbursed
If there is some business use of the car and the driver does not reimburse the business for any full cost of private journeys what happens?
Output VAT is payable on scale charge
What are the conditions to be able to claim VAT relief for impairment loss?
- At least six months must have elapsed from the time that payment was due (or the date of supply if later).
- The debt must have been written off in the seller’s VAT account.
- Claims for relief for irrecoverable debts must be made within four years and six months of the payment being due.
How is relief for impairment losses obtained?
By adding the VAT element of the irrecoverable debt to the input tax claimed.
