Inputs and outputs and special schemes Flashcards
What must a business consider when claiming input tax ? p49
- Timing of claim
- buyer - prompt reclaim
- assists cashflow
How can variations in the timing of claims occur ? P49
- Tax point variations
- VAT Special scheme
What ia a partially exempt supplier ? P50
- VAT registered business
- supplies - VAT exempt
- supplies - taxable (.e.g standard rate)
- not reclaim input - exempt supplies purchases
What must a partially exempt business do ? P51
- Workout - input tax recoverable
- unless ‘de minimis’ rule
How odes a partially exempt business workout the amount of VAT owed / reclaim ? P51
- Output tax - charge to taxable / not exempt
- input tax:
1. purchases-> exempt supples -> cannot reclaim input tax
2. purchases -> taxable supplies -> can be reclaimed
What is residual input tax ? P51
- Tax - purchases and expenses
- indirect attribution - taxable and exempt
- input recovery proportioned - taxable supplies
How do you work out the percentage of residual input tax ? P52
- supplies in question (taxable/exempt) / total supplies * 100 = % supplies in question
- 100 - % supplies in question = % residual input tax
What is the ‘de minimis’ limit ? P52
- All input recoverable - taxable and exempt purchases & expenses
- total value input tax > set amount ( de minimum limit)
What is the ‘de minimis’ test ? P52
- Input tax for exempt
- £625 limit
- AND
- > 50 % total input vat for period
How do you calculate on whether the input tax for exempt goods is less than £625 per month ? P52
Input tax for exempt supplies / 12
How do you calculate whether input tax exempt supplies is less than 50 % of total input VAT for the period ? P52
- Input tax ( taxable supplies) + input tax (exempt supplies) = total input tax
- input tax (exempt supplies) / total input tax* 100 = %
- IF % > 50% = de minimum pass
- exempt supplies input tax = recovered in full
What is the ONLY thing busiensses can claim back ? P53
- Actual business expenses
If a business uses goods/ services partly for business purposes and partly for non-business purposes what must it do ? P53
Identify - businesss
identify - non business
What are blocked expenses ? P53
- Cannot reclaim - input VAT
What does the HMRC state about VAT on business entertainment ? P53
- Input tax irrecoverable
- exception - entertaining overseas customers
What is employee entertainment - business expense ? P53
- Reward employee -good work
- business purpose - not blocked
How does a busines deal with mixed entertaining ( business and employee) P53
- Proportion of input - not relate to client/ staff entertaining only
Are businesses generally allowed to reclaim vat if they buy a car ? P54
- No - Input tax blocked
When can input tax be reclaimed on the purchase of a car ? P54
- Wholly business - not even work
- Taxi business, driving instructor
- car dealer - inventory (12 months)
Can a business reclaim VAT on vehicle repares and maintenance ? P54
- Yes
- business pays for work
- some business use of vehicle
What type of vehicles can businesses reclaim input tax on the normal way ? P54
- Commercial vehicles
- Van
- Lorries
- Tractors
How is VAT dealt with by a business leasing / hiring a car ? P54
- 50 % of VAT - leasing payment
- look at example
How does a business deal with selling a vehicle that they previously brought without reclaiming input tax ? P54
- Cannot reclaim input VAT - car brought
- cannot charge vat - car sold
- e.g. driving school charge vat
What are the different ways a business can approach the fuel costs incurred on a company car driven by an employee ? P55
- All fuel business purposes - all input vat reclaimed
- no need to reclaim - low mileage / some private use - all vehicles
- business purposes and private - only business - detailed record
- separate fuel charge
How can a business purchasing fuel which will be used for both business and private motoring account for VAT ? P55
- Reclaim VAT charged
- AND
- pay fuel scale charge
What is the fuel scale charge ? P55
- CO2 (carbon dioxide)
- higher emission = greater effect on environmnet
- higher fuel scale charge
What can a business use if accounting for private usuage of fuel, by paying the fuel scale charge ? P55
- Calculation tool - HMRC section - gov website
What is the process for the fuel scale charge calculation ? P56
- select period ( 1st May - 30th April)
- length of accounting period - monthly , quarterly , annually
- CO2 emission figure - bands
- Change of car - fuel scale charge apportioned
How are CO2 emissions figures that are not a multiple of 5 treated - look at calculation example in the book ? P56
- Rounded down - next multiple of 5
What to remember about the charges incurred on the fuel scale charge table ? P57
- Charge inclusive of VAT
- VAT amount only - on VAT return / control account
*
What must you bear in mind with fuel scale charges on year to year ? P56
- Increases every year
- three times - low emission vehicle
What is a mixed used asset ? P58
- Asset purchased by business
- part use - by business
- part use - by owner
How should VAT on a mixed used asset be claimed back ? P58
- Proportioned = use of asset
- Proporitioned relating business use
What is the HMRC method for apportioning VAT, to reclaim back on the purchase of mixed used assets ? P58
- No set method
- fair and reasonable
- justification needed
Why does VAT need to be charged on goods imported from abroad ? P58
Avoid overseas supplier advantage
Who pays for imported goods and services ? P58
- Tax on imported goods and services
- paid by importer
- input tax
How do most VAT-registered businesses account for import of goods P58?
- Postponed VAT accounting
- declare import & reclaim input tax - same VAT return
What effect does postponed VAT accounting have on the cashflow of the business ? P59
- improves it
- Not - upfront payment imported - recovering it later
- delay payment- declaring and recovering import - same return
What happens if the business chooses to pay import tax when the goods enter the country ? P59
- VAT incurred - reclaimed normal input
- import VAT statmeent evidence
How do UK businesses not registered for VAT deal with import tax ? P59
- Import tax paid
- not reclaimed
How are exported goods taxed ? P59
- VAT - goods used in UK
- exported goods - zero rates
- documentary evidence - export and laws obeyed
- except - overseas customer - delivery to UK address
Why is it important to know the place of supply? P59
Place - VAT charged and paid
How do you determine the place for supply for goods ? P59
- Country - goods are from
How do you determine the place of supply for services - providing to a business customer? P59
customer is located
The place of supply for a service - non business customer ? P59
- supplier is located
How must a business account for VAT when exporting services overseas ? PP60
- Outside scope UK vat
- net sales - VAT return
- non business customer = vatable = customer in UK
What are import services - reverse charge - referring to ? P60
- business - account for vat itself
- reverse charge
- business = supplier & customer
- charges itself VAT - claims it back
How does reverse charge work step by step ? P60
- VAT return = VAT in output & VAT in input
- net costs - other net sales and purchases
What do special schemes within the HMRC do , and what are the three main ones ? P60
- Vary - VAT collected
- annual accounting scheme
- flat rate scheme
- cash accounting scheme
What does the annual accounting scheme for VAT allow ? P60
- One annual VAT return
What must your turnover be to apply for annual accounting scheme ? P60
- maximum taxable turnover 12 months = no more than 1.35 million
- turnover = standard, reduced , zero - excludes VAT / sale of capital assets
How do traders pay under annual accounting scheme - 9 installments ? P61
- 90 % - estimated annaul VAT payment
- previous year’s VAT return - 9 equal monthly payments
- 4th month start - VAT year
What if the annual taxable turnover goes over 1.35 million, and you are using an annaual accounting sheme ? P61
- Can continue
- next accounting year - 1.6 million - must leave
What is an alternative way that a business can make interim payments under the annual accounting scheme ? P61
- Three interim payments = 25 % previous year’s VAT liability
- 25 % likely annual VAT liability = less 12 months registration
- payable months = 4, 7 , 10 - annual accounting period
How and when must traders submit VAT return under annual accounting scheme ? P61
- Electronically
- within two months - end of VAT year
How can a business withdraw from the annual accounting scheem ? P61
- Voluntarily
- any time - writing to HMRC
- afterwards - usual accounting vat
What can the annual accounting scheme be used in conjunction with ? P61
- Flat rate scheme
- Cash accounting scheme
- NOT BOTH
What must a business acquiring another business which is under the annual accounting scheme do ? P61
- Assess - use of annual accounting scheme
- calculate - expected + combined turnover of new business
- 1.6 million exceeded = cease scheme
What are the advantages of annual accounting schemes ? P62
- Smooth cash flow - set amount
- one VAT return per year - not 4 required standard scheme
- two month ( rather than 1) complete
- Align VAT year - end of business tax year
What are disadvantage of annual accounting scheme ? P62
- Reguar reclaimer - one payment per year
- turnover decreases - higher interim payments (previous year liability)
What is a flat rate scheme ? P62
- Not every transaction
- Flat percentage rate - total turnover (VAT and Exempt)
How must businesses under the flat rate scheme issue invoices ? P62
- VAT invoice
- appropriate rate of VAT
Can a business under the flat rate scheme reclaim input tax ? P62
- No
- accounted - flate rate percentage
When can a business join the flate rate shceme ? P63
Taxable turnover - 12 months - less than £150,000
When must a business leave the flat rate scheme ? P63
- Annual assessment
- turnover (VAT and exempt) exceed / expected exceed ( next 12 months) - 230,000 a year
How can a business voluntarily withdraw from the flat rate accounting scheme ? P63
- Writing - HMRC
- HMRC confirmation
- account VAT usual way
- 12 month wait to rejoin
What are the flat rate percentages fore different types of businesses ? P63
Retailers of food and newspapers 4%
Sports and recreation 8.5%
Photography 11%
Entertainment 12.5%
Agricultural services 11 %
Accounting and booking services 14.5%
What is the calculation for the flat rate scheme ? P63
- income for period (VAT inclusive)* flat rate percentage
What is a benefit of the flat rate scheme ? P63
- First year vat registration = 1% reduction
- amount to HMRC only
- allowance for input tax - %
- normal rate - not flat rate invoices
When must a flat rate of 16.5% be used ? P64
Limited costs business - provides service
Business - incur minimal costs
When is a business classed a limited cost busienss ? P64
- Expenditure ( inclusive VAT)
- less than EITHER
- 2% - VAT inclusive turnover
- more than 2 % - less than £1,000 per year
- any sector
*
What can a flat rate scheme be used in conjunction with ? P64
- Annual accounting scheme
- basic pecerntage
- once per year
What must be done is a business operating a flat rate scheme is taken over ? P64
- assess
- expected and combined turnover
- exceeds £230,000 = cessation
How does capital expenditure work under the flat rate shceme ? P64
- £2000 or more = claim back
- Selling on - charge VAT
- Extra VAT - purchases and sales - on VAT return
- Quartely / annual (with annual accounting scheme)
What does the cash accounting scheme allow ? P65
- Account for VAT:
- date payment received and made
- tax point invoice - received and issued
What type of traders does the cash accounting scheme scheme help ? P65
- Pay supplier promptly
- time - receiving payment from customers
- automatic bad debt relief - no payment = no declarable
What does a business need to qualify for cash accounting scheme ? P65
Anticipate annual taxable turnover - 1.35 million - standard, reduced, zero ( no VAT and exempt)
Clean record - returns, evasion , fraud
What if a business exceeds the 1.35 million threshold on a cash accountign scheme ? P65
- until 1.6 million
- 1.6 million exceeded = cessation
How can a business withdraw from the cash accounting scheme ? P65
- Voluntarily
What must be done if a business under the cash accounting scheme is taken over as a going concern ? P65
- assess - expected and combined takeover
- 1.6 million exceeded = cessation
How must a business account for VAT under the cash accounting scheme ? P65
- VAT invoices issued
- tax point for payment = transaction date
- invoices issued/ received payment in cash - receipted and dated
What can the cash accounting scheme be used in conjunction with ? P65
- Annual accounting scheme
- not flat rate scheme
Where must the fuel scale charge be included once it’s been calculated ? P57
- VAT control account
- VAT return
