Chapter 3 - Special Schemes

Question 1

What is the taxable turnover threshold for the cash accounting scheme?

Answer 1

£1.35m per annum. Once in the scheme, can be used until taxable turnover (standard & zero rated sales) exceeds £1.6m per annum

Question 2

Using the cash accounting scheme - when can VAT be reclaimed?

Answer 2

When the business has paid the invoice

Question 3

Using the cash accounting scheme - when is VAT paid to HMRC

Answer 3

Only if the customer has paid. If the customer never pays the business, the business never has to pay the VAT

Question 4

What other scheme can the cash accounting scheme be used with?

Answer 4

The annual accounting scheme BUT NOT THE FLAT RATE SCHEME

Question 5

What are the benefits of using the cash accounting scheme?

Answer 5

• May help cash flow

- VAT does not have to be paid if a customer never pays

Question 6

What are the disadvantages of using the cash accounting scheme?

Answer 6

• Cannot reclaim VAT on purchases until the business has paid for them. Most goods are bought on credit
• Businesses that usually reclaim more VAT would receive re-payment from HMRC later

Question 7

What businesses can use the annual accounting scheme?

Answer 7

Those whose estimated future taxable turnover doesn’t exceed £1.35m. Can be used until turnover exceeds £1.6m once in it

Question 8

True or False - You only have to submit 1 VAT return under the annual accounting scheme?

Answer 8

TRUE - only have to submit 1

Question 9

How are payments made to HMRC under the annual accounting scheme?

Answer 9

They are based on the previous years liability.

Made in instalments:

9 instalments beginning in month 4

3 installments in months 4, 7 & 10

Once the annual return is completed - a balancing payment is made or a balancing refund is received

Question 10

Under the annual accounting scheme, an estimate of a business’s VAT liability is £89,100 - calculate the POA schedule

Answer 10

9 payments of £8,910 (which would total up t0 90% of estimated liability), starting in month 4, with a balancing payment made in month 14

OR Three payments in months 4,7 & 10. Each 25% of estimated VAT liability

Question 11

When is the due date for the balancing payment under the annual accounting scheme?

Answer 11

2 Months after the year end date (normally month 14)

Question 12

What are the advantages of the annual accounting scheme?

Answer 12

1 VAT return

Better management of cash flow - paying a fixed amount in 9 instalments

Question 13

What are the disadvantages of using the Annual accounting scheme?

Answer 13

Only get 1 repayment per year, not ideal if you regularly receive a repayment

Question 14

Who can use the flat rate scheme?

Answer 14

Those with a taxable turnover under £150,000 per annum.

Once in it, the scheme can be used until the taxable turnover reaches £230,000

Question 15

A business is a limited cost business if goods cost less than are either:

Answer 15

2% of its turnover

Cost less than £1,000 a year

Question 16

What is the flat rate for a limited cost business?

Answer 16

16.5% whatever its business type

Question 17

Under the flat rate scheme a business pay a fix % of the turnover (including VAT) Does this include zero-rated & exempt supplies?

Answer 17

YES - so if the business has standard rated sales of £5,000 & zero rated sales of £4,500. You add them both up = £9,400 and x by the flat rate %

Question 18

When can a business reclaim input VAT under the flat rate scheme?

Answer 18

If expenditure relates to non-current assets over £2,000 (including VAT) e.g a computer.

Otherwise, it is already taken into account in the calculation of the flat rate %

Question 19

What are the benefits of the flat rate scheme?

Answer 19

Saves time when working out VAT

Does not need to record VAT in their records for every purchases

A business in first year of registration gets a 1% reduction in the applicable flat rate percentage for the first year

Less chance of mistakes = fewer worries

Question 20

Under the flat rate scheme - a business still needs to include VAT on their invoices to customers? T OR F

Answer 20

TRUE