Introduction to value added tax Flashcards
What is value added tax ? P3
Tax - sale of goods/services
What does the definition of value added tax further mean ?
- tax on consumer expenditure - business / individual
- indirect tax - direct tax = payslip
Do other countries have VAT ?P3
- Yes
- varying rates
Why is VAT important for the government ? P3
- Source of revenue
- higher rate = more finance
What is the governmentr body that regulates and collects VAT in the UK ? P3
HMRC
What law is VAT usually concerned with ? P3
- Value Added Tax Act (1994)
- Amended:
- annual finance acts/ regulations - government
- Amended:
- VAT Guide (notice 700) - HMRC
- gov website
Why should a business be concerned with its turnover ? P4
- legal requirement registration - Annual turnover < level
- government threshold - budget
- £85,000 - since April 2017
- April 2024 - 90,000
At what point in time must a business start to think of registering for vat? P4
- end of any month
- total taxable turnover sales (previous 12 months) < threshold
- next 30 days likely
What is the effect of VAT registration ? P4
- Charge Output - Taxable supplies
- Reclaim Input - Supplies received
Why would businesses charge more VAT (output tax) than pay (input tax) , and how is VAT submitted ?P4
- Operated for profit = received < paid
- Online - VAT return - differencev
Who ultimately pays for the VAT/ who is the ender user ? P4 - CHECK DIAGRAM
Final consumer
What are the 3 stages of VAT to the HMRC? P6
- Financial transactions to accounts
- Accounts to VAT return
- VAT return to HRMC
What does step 1 , transfer financial transactions to accounts, entail ? P6
- Financial transactions documents - accointing systems
- transfer - day books, cash book, petty cas book
- Transfer - VAT total = VAT account
What does stage 2 , accounts to VAT return , entail ? P7
- Transfer - VAT control accounts to VAT return
- workout - input deducted from output
What does step 3 , VAT return to HMRC, entail ? P7
- Submission VAT return (usually 3 months) HMRC
- Payment made - Appropriate due date electronically
What are the three rates of VAT in the UK ? P8
- Standard rate - 20%
- Reduced rate - 5%
- Zero rate - 0%
- exempt
- outside scope
What are zero-rates supplies ? P8
- Taxable supplies
- government discretion not to
- essential household spending
- essential safely perform tax
Can businesses selling zero-rated supplies be allowed to relaim the VAT (input tax) paid for ? P8
- Yes
- publisher - zero rated sold- reclaim material costs
What are exempt supplies ? P8
- Not chargeable at all
- businesss (exempt supplies only) - Input cannot be reclaimed
What is the main challenge with learning VAT info from sources ? P9
- Info changes frequently
- VAT rates may vary
- new Government budget = changes
Where are the most useful online sources for VAT ?P9
- www.gov.uk
- Major accounting firm websites
What is the issue with obtaining VAT info from paper-based sources ? P9
Out of date - time read
What source, other than paper and online, can be used to obtain VAT information ? P10
- Continuing Professional Development updates
- professional accounting bodies
- most current info
When in time must a business notify HMRC about becoming a taxable person ? P10
- 30 days - end of the month - threshold exceeded
- first day 2nd month - effective
- historic turnover test - Exceed month 1, notify of month 2 , first day of month 3
When it is known that the threshold shall be exceeded in the future , when must the business register fror VAT ? 10
Expectation = next 30 days
registration - end of 30 day period
future tunover test:
month 1 ( expected payment) , end of month 1 (notify HMRC) , effective from start of month 1
What will happen if a business does not register for VAT on time ? P10
- Fined
- non collection for HMRC
Are businesses that provide zero-rated goods and services included in the regulations mentioned on page 10 ?
- Yes
- exemption possible
What is the fine called when a business fails to register for VAT ? P11
- Civil penalty - failure to notify
- percentage of - potential lost revenue
What does the calculation of the civil penalty fine for non registration depend on ? P11
- Deliberate failure or not
- prompted or not
- length since due
When will the civil penalty for non registration not be incurred CHECK TABLE ON PAGE 11 ? P11
- Reasonable excuse
What is the % of potential lost revenue for a business that has (non delibrately) failed to collect tax for the HMRC within 12 months , unprompted and then prompted? P11
Within 12 months of tax being due
- 0-30%
- 10-30%
What is the % of potential lost revenue for a business that has delibrately not collected tax for the HMRC , unprompted and then prompted ? P11
Within 12 months of tax being due
- 20-70%
- 35-70%
What is the percentage of potential lost revenue for a business that has delibrately not collected tax for the hmrc and concealed this ? P11
Within 12 months of tax being due
- Unprompted - 30 to 100 %
- Prompted - 50 to 100 %
What is the pecentage of potential lost revenue for a business that has ( not delibrately) not collected tax for the HMRC, ? P11
12 months or more after tax was due
Unprompted - 10-30%
Prompted - 20-30%
What is the percentage of potential lost revenue for a business that deliberately not collected VAT for the HMRC ? P11
12 months or more after tax was due
Unprompted - 20 to 70 %
Prompted - 35 to 70 %
What is the percentage of potential lost revenue for a business that has deliberately not collected tax for the HMRC and has tried to conceal this ? P11
12 months or more after tax was due
30 to 100 %
50 to 100 %
What then happens once the VAT inspection has been completed ? P17
- Review - work carried out
- future action needed
- adjustments
What can the business do, if they owe PLR in relation to non registration ? P11
Invoice inclusive = absorb costs
Additional charge = attempt to recover from customer
Aside from the fines, how would the HMRC treat a business that did not register for VAT ? p11
- As if registered on time
- VAT accounted for
- VAT Charged = potential loss of revenue
- Civil Penalty = percentage of potential loss of revenue
Why is attempting to recover from a customer in relation tov PLR difficult ? P11
- Customer unobliged
What would happen if you take over a business that is going concern ? P12
- Total your tunrover + turnover of business = exceeds VAT
- registration = day of transfer
What should happen if the business exceeds the VAT threshold temporarily ? P12
- E.g. significant one off sale
- wirtten evidence
- not over degregistration - next 12 months
- 30 day limit - application for de-registration
When is a person/ business classed as a taxable person ? P12
- Income - trade, vocation, profession
- membership benefits
- activities - charity/ non profit making body
* regular * period of time
What is the advantage and disadvantage of non -registration ? P13
- More competative - noot to consumers
- cannot claim input
Why would a business volunteer to be registered for VAT ? P13
- Benefit re-claiming input tax
- reduces purchase costs - zero rated business
- pruchases and capital assets - held on effective registration date
- four years for goods
- 6 months for services
What type of business cannot register for VAT ? P14
Exempt goods
When must a registered business notify the HMRV about change of name, trading name , or address ? p14
Within 30 days
When must a business notify the HMRC about chnages in partnerhsip memebers ? P14
Within 30 days
When must a business notify the HMRC about changes in bank details ? P14
14 days on adavance
When must a business notify the HMRC about chnages in Business activity ? P14
within 30 days
Why would a business voluntarily deregister from VAT ? P14
- falls / likely to fall below threshold
- run down - before retirement
- decide - work part time
- evidence needed
How can deregistration of VAT be done ? p15
- Online - VAT form
- effective - request to dereigster received
- agreed later date
What is the main reason for there to be compulsory deregistration ? P15
- Taxable supplies - stops making
- 30 day notification
- date of cessation
What are other circumstances that also result in compulsory deregistration ? P15
- Business sold
- legal status
- VAT group disbanded
- Agricultural Flat Rate Scheme
What is the main online form that a VAT reigstered business must complete ? P16
VAT return
What records does the HMRC require that a VAT registered business keep, and what is this used for ? P16
- VAT return is correct
How long does the HMRC require a VAT registered business to keep its records for ? P16
At least 6 years
What do VAT inspectors usually check the VAT records for ? P16
- Accurate
- complying VAT regulations
- correct amount of VAT
- Failure = penalty £500
How are businesses required to store VAT records ? P17
- Electronically
- Making Tax Digital
What will the HMRC officer usually confirm before making a visit ? P17
- 7 days notice
- information to be seen
- length of visit
- inspection of premises
- business - delay request
Does the HMRC always give notice? P17
- Without appointment
- telephone
