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Tax processes for businesses (finance act 2023) > Inputs and outputs and special schemes > Flashcards

Inputs and outputs and special schemes Flashcards

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1
Q

What must a business consider when claiming input tax ? p49

A
  • Timing of claim
  • buyer - prompt reclaim
  • assists cashflow
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2
Q

How can variations in the timing of claims occur ? P49

A
  • Tax point variations
  • VAT Special scheme
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3
Q

What ia a partially exempt supplier ? P50

A
  • VAT registered business
  • supplies - VAT exempt
  • supplies - taxable (.e.g standard rate)
  • not reclaim input - exempt supplies purchases
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4
Q

What must a partially exempt business do ? P51

A
  • Workout - input tax recoverable
  • unless ‘de minimis’ rule
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5
Q

How odes a partially exempt business workout the amount of VAT owed / reclaim ? P51

A
  • Output tax - charge to taxable / not exempt
  • input tax:
    1. purchases-> exempt supples -> cannot reclaim input tax
    2. purchases -> taxable supplies -> can be reclaimed
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6
Q

What is residual input tax ? P51

A
  • Tax - purchases and expenses
  • indirect attribution - taxable and exempt
  • input recovery proportioned - taxable supplies
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7
Q

How do you work out the percentage of residual input tax ? P52

A
  • supplies in question (taxable/exempt) / total supplies * 100 = % supplies in question
  • 100 - % supplies in question = % residual input tax
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8
Q

What is the ‘de minimis’ limit ? P52

A
  • All input recoverable - taxable and exempt purchases & expenses
  • total value input tax > set amount ( de minimum limit)
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9
Q

What is the ‘de minimis’ test ? P52

A
  • Input tax for exempt
  • £625 limit
  • AND
  • > 50 % total input vat for period
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10
Q

How do you calculate on whether the input tax for exempt goods is less than £625 per month ? P52

A

Input tax for exempt supplies / 12

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11
Q

How do you calculate whether input tax exempt supplies is less than 50 % of total input VAT for the period ? P52

A
  • 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
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12
Q

What is the ONLY thing busiensses can claim back ? P53

A
  • Actual business expenses
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13
Q

If a business uses goods/ services partly for business purposes and partly for non-business purposes what must it do ? P53

A

Identify - businesss
identify - non business

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14
Q

What are blocked expenses ? P53

A
  • Cannot reclaim - input VAT
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15
Q

What does the HMRC state about VAT on business entertainment ? P53

A
  • Input tax irrecoverable
  • exception - entertaining overseas customers
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16
Q

What is employee entertainment - business expense ? P53

A
  • Reward employee -good work
  • business purpose - not blocked
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17
Q

How does a busines deal with mixed entertaining ( business and employee) P53

A
  • Proportion of input - not relate to client/ staff entertaining only
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18
Q

Are businesses generally allowed to reclaim vat if they buy a car ? P54

A
  • No - Input tax blocked
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19
Q

When can input tax be reclaimed on the purchase of a car ? P54

A
  • Wholly business - not even work
  • Taxi business, driving instructor
  • car dealer - inventory (12 months)
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20
Q

Can a business reclaim VAT on vehicle repares and maintenance ? P54

A
  • Yes
  • business pays for work
  • some business use of vehicle
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21
Q

What type of vehicles can businesses reclaim input tax on the normal way ? P54

A
  • Commercial vehicles
  • Van
  • Lorries
  • Tractors
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22
Q

How is VAT dealt with by a business leasing / hiring a car ? P54

A
  • 50 % of VAT - leasing payment
  • look at example
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23
Q

How does a business deal with selling a vehicle that they previously brought without reclaiming input tax ? P54

A
  • Cannot reclaim input VAT - car brought
  • cannot charge vat - car sold
  • e.g. driving school charge vat
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24
Q

What are the different ways a business can approach the fuel costs incurred on a company car driven by an employee ? P55

A
  • 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
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25
Q

How can a business purchasing fuel which will be used for both business and private motoring account for VAT ? P55

A
  • Reclaim VAT charged
  • AND
  • pay fuel scale charge
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26
Q

What is the fuel scale charge ? P55

A
  • CO2 (carbon dioxide)
  • higher emission = greater effect on environmnet
  • higher fuel scale charge
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27
Q

What can a business use if accounting for private usuage of fuel, by paying the fuel scale charge ? P55

A
  • Calculation tool - HMRC section - gov website
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28
Q

What is the process for the fuel scale charge calculation ? P56

A
  • select period ( 1st May - 30th April)
  • length of accounting period - monthly , quarterly , annually
  • CO2 emission figure - bands
  • Change of car - fuel scale charge apportioned
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29
Q

How are CO2 emissions figures that are not a multiple of 5 treated - look at calculation example in the book ? P56

A
  • Rounded down - next multiple of 5
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30
Q

What to remember about the charges incurred on the fuel scale charge table ? P57

A
  • Charge inclusive of VAT
  • VAT amount only - on VAT return / control account
    *
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31
Q

What must you bear in mind with fuel scale charges on year to year ? P56

A
  • Increases every year
  • three times - low emission vehicle
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32
Q

What is a mixed used asset ? P58

A
  • Asset purchased by business
  • part use - by business
  • part use - by owner
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33
Q

How should VAT on a mixed used asset be claimed back ? P58

A
  • Proportioned = use of asset
  • Proporitioned relating business use
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34
Q

What is the HMRC method for apportioning VAT, to reclaim back on the purchase of mixed used assets ? P58

A
  • No set method
  • fair and reasonable
  • justification needed
35
Q

Why does VAT need to be charged on goods imported from abroad ? P58

A

Avoid overseas supplier advantage

36
Q

Who pays for imported goods and services ? P58

A
  • Tax on imported goods and services
  • paid by importer
  • input tax
37
Q

How do most VAT-registered businesses account for import of goods P58?

A
  • Postponed VAT accounting
  • declare import & reclaim input tax - same VAT return
38
Q

What effect does postponed VAT accounting have on the cashflow of the business ? P59

A
  • improves it
  • Not - upfront payment imported - recovering it later
  • delay payment- declaring and recovering import - same return
39
Q

What happens if the business chooses to pay import tax when the goods enter the country ? P59

A
  • VAT incurred - reclaimed normal input
  • import VAT statmeent evidence
40
Q

How do UK businesses not registered for VAT deal with import tax ? P59

A
  • Import tax paid
  • not reclaimed
41
Q

How are exported goods taxed ? P59

A
  • VAT - goods used in UK
  • exported goods - zero rates
  • documentary evidence - export and laws obeyed
  • except - overseas customer - delivery to UK address
42
Q

Why is it important to know the place of supply? P59

A

Place - VAT charged and paid

43
Q

How do you determine the place for supply for goods ? P59

A
  • Country - goods are from
44
Q

How do you determine the place of supply for services - providing to a business customer? P59

A

customer is located

45
Q

The place of supply for a service - non business customer ? P59

A
  • supplier is located
46
Q

How must a business account for VAT when exporting services overseas ? PP60

A
  • Outside scope UK vat
  • net sales - VAT return
  • non business customer = vatable = customer in UK
47
Q

What are import services - reverse charge - referring to ? P60

A
  • business - account for vat itself
  • reverse charge
  • business = supplier & customer
  • charges itself VAT - claims it back
48
Q

How does reverse charge work step by step ? P60

A
  • VAT return = VAT in output & VAT in input
  • net costs - other net sales and purchases
49
Q

What do special schemes within the HMRC do , and what are the three main ones ? P60

A
  • Vary - VAT collected
  • annual accounting scheme
  • flat rate scheme
  • cash accounting scheme
50
Q

What does the annual accounting scheme for VAT allow ? P60

A
  • One annual VAT return
51
Q

What must your turnover be to apply for annual accounting scheme ? P60

A
  • maximum taxable turnover 12 months = no more than 1.35 million
  • turnover = standard, reduced , zero - excludes VAT / sale of capital assets
52
Q

How do traders pay under annual accounting scheme - 9 installments ? P61

A
  • 90 % - estimated annaul VAT payment
  • previous year’s VAT return - 9 equal monthly payments
  • 4th month start - VAT year
53
Q

What if the annual taxable turnover goes over 1.35 million, and you are using an annaual accounting sheme ? P61

A
  • Can continue
  • next accounting year - 1.6 million - must leave
54
Q

What is an alternative way that a business can make interim payments under the annual accounting scheme ? P61

A
  • 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
55
Q

How and when must traders submit VAT return under annual accounting scheme ? P61

A
  • Electronically
  • within two months - end of VAT year
56
Q

How can a business withdraw from the annual accounting scheem ? P61

A
  • Voluntarily
  • any time - writing to HMRC
  • afterwards - usual accounting vat
57
Q

What can the annual accounting scheme be used in conjunction with ? P61

A
  • Flat rate scheme
  • Cash accounting scheme
  • NOT BOTH
58
Q

What must a business acquiring another business which is under the annual accounting scheme do ? P61

A
  • Assess - use of annual accounting scheme
  • calculate - expected + combined turnover of new business
  • 1.6 million exceeded = cease scheme
59
Q

What are the advantages of annual accounting schemes ? P62

A
  • 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
60
Q

What are disadvantage of annual accounting scheme ? P62

A
  • Reguar reclaimer - one payment per year
  • turnover decreases - higher interim payments (previous year liability)
61
Q

What is a flat rate scheme ? P62

A
  • Not every transaction
  • Flat percentage rate - total turnover (VAT and Exempt)
62
Q

How must businesses under the flat rate scheme issue invoices ? P62

A
  • VAT invoice
  • appropriate rate of VAT
63
Q

Can a business under the flat rate scheme reclaim input tax ? P62

A
  • No
  • accounted - flate rate percentage
64
Q

When can a business join the flate rate shceme ? P63

A

Taxable turnover - 12 months - less than £150,000

65
Q

When must a business leave the flat rate scheme ? P63

A
  • Annual assessment
  • turnover (VAT and exempt) exceed / expected exceed ( next 12 months) - 230,000 a year
66
Q

How can a business voluntarily withdraw from the flat rate accounting scheme ? P63

A
  • Writing - HMRC
  • HMRC confirmation
  • account VAT usual way
  • 12 month wait to rejoin
67
Q

What are the flat rate percentages fore different types of businesses ? P63

A

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%

68
Q

What is the calculation for the flat rate scheme ? P63

A
  • income for period (VAT inclusive)* flat rate percentage
69
Q

What is a benefit of the flat rate scheme ? P63

A
  • First year vat registration = 1% reduction
  • amount to HMRC only
  • allowance for input tax - %
  • normal rate - not flat rate invoices
70
Q

When must a flat rate of 16.5% be used ? P64

A

Limited costs business - provides service
Business - incur minimal costs

71
Q

When is a business classed a limited cost busienss ? P64

A
  • Expenditure ( inclusive VAT)
  • less than EITHER
  • 2% - VAT inclusive turnover
  • more than 2 % - less than £1,000 per year
  • any sector
    *
72
Q

What can a flat rate scheme be used in conjunction with ? P64

A
  • Annual accounting scheme
  • basic pecerntage
  • once per year
73
Q

What must be done is a business operating a flat rate scheme is taken over ? P64

A
  • assess
  • expected and combined turnover
  • exceeds £230,000 = cessation
74
Q

How does capital expenditure work under the flat rate shceme ? P64

A
  • £2000 or more = claim back
  • Selling on - charge VAT
  • Extra VAT - purchases and sales - on VAT return
  • Quartely / annual (with annual accounting scheme)
75
Q

What does the cash accounting scheme allow ? P65

A
  • Account for VAT:
  • date payment received and made
  • tax point invoice - received and issued
76
Q

What type of traders does the cash accounting scheme scheme help ? P65

A
  • Pay supplier promptly
  • time - receiving payment from customers
  • automatic bad debt relief - no payment = no declarable
77
Q

What does a business need to qualify for cash accounting scheme ? P65

A

Anticipate annual taxable turnover - 1.35 million - standard, reduced, zero ( no VAT and exempt)
Clean record - returns, evasion , fraud

78
Q

What if a business exceeds the 1.35 million threshold on a cash accountign scheme ? P65

A
  • until 1.6 million
  • 1.6 million exceeded = cessation
79
Q

How can a business withdraw from the cash accounting scheme ? P65

A
  • Voluntarily
80
Q

What must be done if a business under the cash accounting scheme is taken over as a going concern ? P65

A
  • assess - expected and combined takeover
  • 1.6 million exceeded = cessation
81
Q

How must a business account for VAT under the cash accounting scheme ? P65

A
  • VAT invoices issued
  • tax point for payment = transaction date
  • invoices issued/ received payment in cash - receipted and dated
82
Q

What can the cash accounting scheme be used in conjunction with ? P65

A
  • Annual accounting scheme
  • not flat rate scheme
83
Q

Where must the fuel scale charge be included once it’s been calculated ? P57

A
  • VAT control account
  • VAT return
84
Q
A

Tax processes for businesses (finance act 2023) (6 decks)

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