Chapter 6: VAT Returns and Overseas Aspects

Question 1

Complete the sentences regarding the VAT return.

1. There are __ boxes in the VAT return.
2. Boxes __ to __, contain ___ amounts and should be completed to ___ decimal places.
3. Boxes __ to __, contain _____ and should be entered to the ______ _____.

Answer 1

1. There are 9 boxes in the VAT return.
2. Boxes 1 to 5, contain VAT amounts and should be completed to two decimal places.
3. Boxes 6 to 9, contain totals and should be entered to the nearest pound.

Question 2

What goes in each box on the VAT return? (Not including boxes 2, 8 or 9)

Answer 2

Box 1: VAT due on sales and other outputs
Box 3: Total VAT due (sum of box 1 and 2)
Box 4: VAT reclaimed on purchases and other inputs
Box 5: Net VAT to be paid to HMRC (difference between box 3 and 4)
Box 6: Total value of sales and all other outputs excluding VAT
Box 7: Total value of purchases and other inputs excluding VAT

Question 3

Why is VAT reconciliation important?

Answer 3

To ensure the VAT return matches accounting records, helping to identify and correct errors

Question 4

What are common reasons for VAT discrepancies?

Answer 4

• The wrong VAT scheme is set in the accounting system
• Errors when transferring data from manual records to accounting system

Question 5

How is VAT reclaimed on irrecoverable (bad) debts and why?

Answer 5

VAT is reclaimed through an adjustment on the VAT return because suppliers are not allowed to issue credit notes to recover VAT on bad debts

Question 6

Where is VAT on an irrecoverable (bad) debt recorded in the VAT return?

Answer 6

Box 4

Question 7

Where are exports recorded on the VAT return?

Answer 7

Box 6

Question 8

What are the four steps to use Postponed VAT Accounting (PVA)?

Answer 8

1. The business charges itself output tax (since VAT must be paid on imports)
2. Record the output tax in Box 1 of the VAT return
3. Reclaim the VAT paid on imports by recording it as input tax in Box 4
4. Include the VAT-exclusive cost of the goods in Box 7

Question 9

When does a business NOT registered for VAT pay VAT on imports?

Answer 9

At the point of entry to the UK, since they can’t reclaim VAT, it becomes an additional cost to the business

Question 10

How is a B2B (business to business) overseas purchase treated in the VAT return?

Answer 10

• VAT is accounted for by the customer using the reverse charge method
• VAT is included in boxes 1 and 4
• The net value is included in boxes 6 and 7

Question 11

How is a B2C (business to customer) overseas sale treated in the VAT return?

Answer 11

• The sale is treated as being supplied in the country where the supplier is based and treated like a normal sale
• VAT is included in box 1
• The net value is included in box 6