Chapter 8 - VAT and Corporation Tax

Question 1

What are the main rates of VAT in the UK?

Answer 1

• 0%
• 20%
• Some supplies are ‘exempt supplies’

Question 2

Explain how the the VAT system works?

Answer 2

A VAT registered trader must charge customers output VAT on taxable supplies. Any input VAT (VAT paid on goods/services purchased) can be offset against output VAT (VAT charged on goods/services sold) any excess of output VAT is paid to HMRC. Any excess of input VAT is reclaimed.

Question 3

What is the set limit that a trader must register for VAT?

Answer 3

A trader must register for VAT if they make taxable supplies over the previous 12 months of £85,000. Must notify HMRC within 30 days of the end of the month in which the limit was exceeded. Penalties apply if not done.

Question 4

Name 4 exempt VAT supplies.

Answer 4

Insurance, 
finance, 
health, 
educations, 
burial and crematory services amongst others

Question 5

Name 4 zero rated VAT supplies.

Answer 5

(Most) Food and drink, catering and restaurants not exempt, also if food kept warm in shops not exempt
books (printed), 
public transport, 
drugs & medicine, 
clothing for children

Question 6

Over what level of turnover can firms elect to pay VAT on a flat rate scheme?

Answer 6

£150,000

Question 7

What is the turnover limit for paying VAT on the flat rate scheme?

Answer 7

£230,000

Question 8

How often should VAT returns be completed?

Answer 8

Every 3 months

Question 9

What is the current rate of corporation tax?

Answer 9

19%

Question 10

What was the rate of corporation tax in 2016/17

Answer 10

20%

Question 11

Over what period is corporation tax paid?

Answer 11

This is charged on a strict accounting period basis rather than a tax year basis. These can not be more than 12 months.

Question 12

Who pays corporation tax and on what?

Answer 12

Companies pay corporation tax on all their income and gains