Dealing With VAT Flashcards
When must a taxable person or business register for VAT
If the value of it’s taxable supplies in the preceding 12 months exceeds £85k
Output VAT vs. Input VAT
Output VAT: Charged from business to customer
Input VAT: Charged by a supplier to a business
What is the standard rate of VAT?
20%
What transactions are exempt from VAT?
Postage Stamps
Financial Transactions
Property Transactions
What is the reduced VAT rate and what is covered by it?
5%, children’s car seats and home energy bills
What goods/services have a 0 rate VAT?
Most food and children’s clothing.
Is VAT charged on disbursements?
No, the cost is passed onto the client
Conditions for an item to be a disbursement (according to HMRC)
- Firm paid supplier on the client’s behalf + acted as the client’s agent
- Client received the benefit of the goods/services paid for
- Client was responsible for paying the 3P
- Client authorised the firm to make a payment on their behalf
- Client is aware that the goods/services are from a supplier, not the firm
What does HMRC not consider to be disbursements?
- Telephone call charges
- Firm’s travel expenses while working on a matter
- Postage fees incurred sending letters to clients
- Photocopying charges
- Bank transfer fees
- Property search fees
How is VAT treated if an invoice, sent to the firm, is addressed to the client?
Agency Method: Firm pays the whole thing (including VAT) or passes it on to the client, and record the total sum in it’s records.
Note: The firm will NOT make an entry on their HMRC account.How is VAT treated if an invoice, sent to the firm, is addressed to the client?
How is VAT treated if an invoice is addressed to the firm?
Principal Method: Firm must use business money, not client money, to pay the invoice. It will then resupply the service to the client at the same price.
EXCEPTION: If the firm receives an invoice from legal counsel in the firm’s own name, it can figuratively just put the client’s name on the invoice.
