Chapter 3: VAT and Discounts Flashcards
Where would a registered business charge output tax?
On its sales
Who would a registered business pay out put tax over to?
the tax authority once any recoverable in put tax is deduced.
What will a register business recover on its purchases?
Input Tax
Name the three main types of discounts?
Trade discount
Bulk discounts
Prompt payment discounts
What is a trade discount given?
At point of sale to reduce list price
When are bulk discounts offered?
On orders over a certain quality/ or amount
Why do businesses use prompt payment discounts?
Encourages customers to pay quickly
When is VAT charged?
On purchases and sales after trade and bulk discounts.
What happens when a prompt payment discount taken?
A credit note is issued to take account of the lower VAT to be paid.
When must a business register for VAT?
If the sales of a business exceed a certain amount for a year
When must a registered business charge VAT?
On sales (output tax) Suffer VAT on purchase (input tax)
What is a Trade Discount?
A trade discount is a percentage reduction from the price of goods or services
What is the list price?
The seller’s standard price before any discounts have been deducted
Why may a trade discount be offered?
because the customer is regular and valued
As an incentive to a new customer or buyer
The customer is in the same trade as the supplier and the supplier wants to develop good relations.
What is a bulk discount?
A percentage reduction from the list price of goods or services offered because the customer’s order is large.
