Chapter 26 - VAT: Administration and overseas aspects

Question 1

What are the two things all registered traders have to do?

Answer 1

• complete a VAT return every return period (see below), and
• pay net VAT due to HMRC or reclaim net VAT repayable from HMRC.

Question 2

What is the deadline for submitting a VAT return?

Answer 2

One month and 7 days after the end of the quarter

Question 3

How long are VAT refunds usually made within?

Answer 3

10 days

Question 4

What is the time limit for claiming a refund for a VAT overpayment?

Answer 4

4 years from the date the the return for the accounting period was due.

Question 5

What is a substantial trader?

Answer 5

Those with VAT liabilities exceeding £2.3 million p.a.

Question 6

What are the three implications of being a substantial trader?

Answer 6

• Monthly payments on account are required.
• Payments at the end of months 2 and 3 in every quarter are 1/24th of the annual liability for the previous year.
• Any additional amounts are paid with the normal VAT return.

Question 7

How long must VAT records be kept?

Answer 7

6 Years

Question 8

When must a VAT invoice be issued?

Answer 8

When a standard rated supply is made to a VAT registered business.

Question 9

How can an invoice be sent assuming the customer agrees?

Answer 9

Electronically`

Question 10

Is a VAT invoice required if the supply is exempt?

Answer 10

No

Question 11

Within how long must a VAT invoice be Issued?

Answer 11

Within 30 days of the date that the taxable supply is treated as being made.

Question 12

What are the 5 things a less detailed VAT invoice must include?

Answer 12

• The supplier’s name, address and VAT registration number.
• The date of supply.
• A description of the goods or services supplied.
• The consideration for the supply.
• The rate of VAT in force at the time of supply.

Question 13

When can a company issue a less detailed VAT invoice?

Answer 13

When the consideration for the supply is 250 or less (VAT inclusive)

Question 14

When do you get a VAT surcharge?

Answer 14

If a VAT return is not submitted on time or a payment of VAT is made late.

Question 15

What will you receive on your first default?

Answer 15

A surcharge liability notice on the trader

Question 16

How long does a surcharge period last?

Answer 16

Starting on the date of the notice and ending on the 12 anniversary of the end of the VAT period to which the default relates.

Question 17

What are the two consequences relating to a further default?

Answer 17

– The surcharge period is extended to the 12 month anniversary of the VAT period to which the new default relates.
– If the default involves the late payment of VAT, then the trader will be subject to a surcharge penalty.

Question 18

When is there no surcharge penalty in relation to a late VAT return?

Answer 18

If the VAT payable is Nil.

Question 19

Surcharge penalties at the rates of 2% and 5% are not made for amounts less than…

Answer 19

£400

Question 20

Where the rate of surcharge is 10% or 15%, a surcharge penalty is the higher of:

Answer 20

£30, or

the actual amount of the calculated surcharge.

Question 21

When does the surcharge period end?

Answer 21

When a trader submits four consecutive quarterly VAT returns on time, and also pays any VAT due on time.

Question 22

Who calculates a traders VAT liability?

Answer 22

The trader

Question 23

What is the De minimis threshold of an error found by a trader?

Answer 23

The greater of

£10,000
or
1% of turnover subject to an upper limit of £50,000

Question 24

What basis is VAT calculated on on the cash accounting scheme?

Answer 24

Cash receipts and payments

Question 25

What is the tax point for the cash accounting scheme?

Answer 25

The time of receipt or payment

Question 26

What are the two advantages of the cash accounting scheme?

Answer 26

• Businesses selling on credit do not have to pay output VAT until cash is received.
• Automatic relief for impaired debts.

Question 27

What are the two disadvantages of the cash accounting scheme?

Answer 27

• Input tax cannot be reclaimed until the invoice is paid delaying recovery of input VAT.
• Not suitable for business with Zero rated supply as it only delays recovery of input VAT.

Question 28

What is the cash accounting scheme aimed at?

Answer 28

Smaller businesses

Question 29

What are the four conditions for the cash accounting scheme?

Answer 29

• Trader must be up to date with VAT returns with no offences in previous 12 months.
  -Taxable turnover including zero rated supply but excluding sale of capital must not exceed £1,350,000 p.a.
  -Trader must leave scheme when taxable turnover excluding VAT exceeds £1,600,000.
  Cannot be used for goods invoiced more than six months in advance of payment date or where invoice issued before supply taking place.

Question 30

What is the annual accounting scheme?

Answer 30

This is where one annual VAT return is filed for a 12 month period.

Question 31

When must an annual return be filed within?

Answer 31

With two months of the annual return period

Question 32

How do the payments on accounts work for annual accounting scheme?

Answer 32

Normally nine payments on accounts for months 4 to 12 of each year.

Each payment represents 10% of previous years liability.

Question 33

For the annual accounting scheme what do the regular payments aid with?

Answer 33

Budgeting and cashflow

Question 34

What will a new business base its payments on with the annual accounting scheme?

Answer 34

An estimate of their VAT liability for the year.

Question 35

For the annual accounting scheme what is made when the return is filed?

Answer 35

A balancing payment

Question 36

For the annual accounting scheme what can a business apply to HMRC for?

Answer 36

Quarterly payments instead of nine monthly payments.

Question 37

What are the conditions for the annual accounting scheme?

Answer 37

Taxable turnver does not exceed £1,350,000 pa
Must be up to date with VAT returns
Must leave scheme when taxable turnover exceeds £1,600,000 pa

Question 38

How does the flat rate scheme work?

Answer 38

Under the flat rate scheme, a business calculates its VAT liability by simply applying a flat rate percentage to total turnover.

Question 39

For the flat rate scheme what is the flat rate percentage applied to?

Answer 39

The gross (VAT inclusive) total turnover figure (inclusive of zero rated and exempt supplies) with no output VAT being recovered.

Question 40

For the flat rate scheme what does the percentage vary according to.

Answer 40

The type of trade that the business does.

Question 41

For the flat rate scheme what does the flat rate of 16.5% apply to?

Answer 41

Businesses with limited or no purchase of goods.

Question 42

Who is the flat rate scheme aimed at?

Answer 42

Very small businesses

Question 43

For the flat rate scheme what must the expected taxable turnover (exuding VAT) not exceed?

Answer 43

£150,000

Question 44

For the flat rate scheme when must a business leave the scheme?

Answer 44

If total VAT inclusive turnover (including taxable and exempt supplies) exceeds £230,000.

Question 45

For the flat rate scheme can a business have committed any VAT offences in the previous 12 months?

Answer 45

No

Question 46

For the flat rate scheme what other scheme must this be used with?

Answer 46

The annual accounting scheme.

Question 47

For the flat rate scheme can you request calculations be made on cash paid / received?

Answer 47

Yes

Question 48

What are the VAT rules for Non-EU exports?

Answer 48

Zero rated supplies regardless on whether the customer is VAT registered

Question 49

What are the VAT rules for Non-EU imports?

Answer 49

VAT charged (like a customs duty)
Can claim input VAT back

Question 50

What are the VAT rules for EU exports?

Answer 50

If customer is VAT registered - Zero rated on sales

If customer is not VAT registered - 20% on sales

Question 51

What are the VAT rules for EU imports?

Answer 51

If supplier VAT registered
-Output VAT accounted for by customer but input VAT suffered can be reclaimed in same return
= Tax neutral

If supplier not VAT registered
-If supplier is not VAT registered no VAT
on goods purchased