Chapter 6

Question 1

The timing of VAT payments

Answer 1

If the customers of the business pay their invoices promptly the business will be able to bank these receipts - which include output VAT charged and use this money as working capital until it has to be paid to HMRC when the VAT return is due.

Question 2

The effect on the cash budget

Answer 2

The output VAT charged to credit customers as part of the regular monthly cash inflow

The quarterly payments to HMRC as cash outflows in May, August, November and February

The increased bank balance which results form the lag in among the quarterly payments to HMRC

Question 3

VAT and cash flow - conclusion

Answer 3

The cash flow advantage of having money in the bank because payment to HMRC is made over a month after the end of the VAT period and sales invoices are settled promptly some months before

The features of the annual accounting scheme for VAT which involves the annual submission of the VAT return, complex arrangements for the payment of the VAT due to HMRC during the year

Question 4

Changes in VAT regulations

Answer 4

VAT regulations change frequently, most importantly in the period following the budget. All these changes have significant effects on the running of businesses for example:

VAT rate changes,
Types of goods and services that are chargeable to VAT, VAT special schemes.

Question 5

Payroll legislation

Answer 5

Businesses are required to submit their payroll to HMRC in real time using recognised accounting software or using a payroll bureaus to ensure they are complying with current payroll legislation.

However, if a business runs its own payroll, it is the responsibility of the business owners or managers to make sure they keep up to date with most current legislation.

Question 6

Dealing with an increase in the standard vat rate

Answer 6

If the business is a retailer, it must use the increased VAT rate for all takings received on or after, 1st April. If the customer paid after 1st April for something it received before 1 April, lower rate should be used.

For services that started before 1 April but finished after that date, it may invoice for the work done up to 31 March at the lower rate and the remainder at the higher rate.

Question 7

Integrity

Answer 7

Accountants should be straightforward and honest in performing professional duties

Question 8

Objectively

Answer 8

Decisions should be based on true facts and accountants must not let their own bias or prejudice, or pressure from others affect decisions that they make

Question 9

Professional competence and due care

Answer 9

Accountants have a duty to ensure that they have the necessary skills to carry out any work that is assigned to them and that they always take sufficient care to ensure that the quality of their work meets the high standards expected of them

Question 10

Confidentiality

Answer 10

Information obtained during the course of professional work should not be disclosed without proper and specific authority or unless there is a legal duty to do so

Question 11

Professional behaviour

Answer 11

Accountants should maintain the good reputation of the accounting profession and should not discredit the accounting profession