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Tax processes for businesses (finance act 2023) > Introduction to value added tax > Flashcards

Introduction to value added tax Flashcards

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1
Q

What is value added tax ? P3

A

Tax - sale of goods/services

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2
Q

What does the definition of value added tax further mean ?

A
  • tax on consumer expenditure - business / individual
  • indirect tax - direct tax = payslip
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3
Q

Do other countries have VAT ?P3

A
  • Yes
  • varying rates
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4
Q

Why is VAT important for the government ? P3

A
  • Source of revenue
  • higher rate = more finance
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5
Q

What is the governmentr body that regulates and collects VAT in the UK ? P3

A

HMRC

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6
Q

What law is VAT usually concerned with ? P3

A
  • Value Added Tax Act (1994)
  • government regulations - annual fiannce acts/ other regulations
  • HMRC regulations - VAT Guide (Notice 700)
  • gov website
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7
Q

Why should a business be concerned with its turnover ? P4

A
  • legal requirement registration - Annual turnover < level
  • government threshold - budget
  • £85,000 - since April 2017
  • April 2024 - 90,000
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8
Q

At what point in time must a business start to think of registering for vat? P4

A
  • end of any month
  • total taxable turnover sales (previous 12 months) < threshold
  • next 30 days likely
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9
Q

What is the effect of VAT registration ? P4

A
  • Charge Output - Taxable supplies
  • Reclaim Input - Supplies received
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10
Q

Why would businesses charge more VAT (output tax) than pay (input tax) , and how is VAT submitted ?P4

A
  • Operated for profit = received < paid
  • Online - VAT return - differencev
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11
Q

Who ultimately pays for the VAT/ who is the ender user ? P4 - CHECK DIAGRAM

A

Final consumer

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12
Q

What are the 3 stages of VAT to the HMRC? P6

A
  • Financial transactions to accounts
  • Accounts to VAT return
  • VAT return to HRMC
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13
Q

What does step 1 , transfer financial transactions to accounts, entail ? P6

A
  • Financial transactions documents - accointing systems
  • transfer - day books, cash book, petty cas book
  • Transfer - VAT total = VAT account
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14
Q

What does stage 2 , accounts to VAT return , entail ? P7

A
  • Transfer - VAT control accounts to VAT return
  • workout - input deducted from output
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15
Q

What does step 3 , VAT return to HMRC, entail ? P7

A
  • Submission VAT return (usually 3 months) HMRC
  • Payment made - Appropriate due date electronically
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16
Q

What are the three rates of VAT in the UK ? P8

A
  • Standard rate - 20%
  • Reduced rate - 5%
  • Zero rate - 0%
  • exempt
  • outside scope
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17
Q

What are zero-rates supplies ? P8

A
  • Taxable supplies
  • government discretion not to
  • essential household spending
  • essential safely perform tax
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18
Q

Can businesses selling zero-rated supplies be allowed to relaim the VAT (input tax) paid for ? P8

A
  • Yes
  • publisher - zero rated sold- reclaim material costs
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19
Q

What are exempt supplies ? P8

A
  • Not chargeable at all
  • businesss (exempt supplies only) - Input cannot be reclaimed
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20
Q

What is the main challenge with learning VAT info from sources ? P9

A
  • Info changes frequently
  • VAT rates may vary
  • new Government budget = changes
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21
Q

Where are the most useful online sources for VAT ?P9

A
  • www.gov.uk
  • Major accounting firm websites
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22
Q

What is the issue with obtaining VAT info from paper-based sources ? P9

A

Out of date - time read

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23
Q

What source, other than paper and online, can be used to obtain VAT information ? P10

A
  • Continuing Professional Development updates
  • professional accounting bodies
  • most current info
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24
Q

When in time must a business notify HMRC about becoming a taxable person ? P10

A
  • 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
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25
Q

When it is known that the threshold shall be exceeded in the future , when must the business register fror VAT ? 10

A

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

26
Q

What will happen if a business does not register for VAT on time ? P10

A
  • Fined
  • non collection for HMRC
27
Q

Are businesses that provide zero-rated goods and services included in the regulations mentioned on page 10 ?

A
  • Yes
  • exemption possible
28
Q

What is the fine called when a business fails to register for VAT ? P11

A
  • Civil penalty - failure to notify
  • percentage of - potential lost revenue
29
Q

What does the calculation of the civil penalty fine for non registration depend on ? P11

A
  • Deliberate failure or not
  • prompted or not
  • length since due
30
Q

When will the civil penalty for non registration not be incurred CHECK TABLE ON PAGE 11 ? P11

A
  • Reasonable excuse
31
Q

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

A
  • 0-30%
  • 10-30%
32
Q

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

A
  • 20-70%
  • 35-70%
33
Q

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

A
  • Unprompted - 30 to 100 %
  • Prompted - 50 to 100 %
34
Q

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

A

Unprompted - 10-30%
Prompted - 20-30%

35
Q

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

A

Unprompted - 20 to 70 %
Prompted - 35 to 70 %

36
Q

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

A

30 to 100 %
50 to 100 %

37
Q

What then happens once the VAT inspection has been completed ? P17

A
  • Review - work carried out
  • future action needed
  • adjustments
38
Q

What can the business do, if they owe PLR in relation to non registration ? P11

A

Invoice inclusive = absorb costs
Additional charge = attempt to recover from customer

39
Q

Aside from the fines, how would the HMRC treat a business that did not register for VAT ? p11

A
  • As if registered on time
  • VAT accounted for
  • VAT Charged = potential loss of revenue
  • Civil Penalty = percentage of potential loss of revenue
40
Q

Why is attempting to recover from a customer in relation tov PLR difficult ? P11

A
  • Customer unobliged
41
Q

What would happen if you take over a business that is going concern ? P12

A
  • Total your tunrover + turnover of business = exceeds VAT
  • registration = day of transfer
42
Q

What should happen if the business exceeds the VAT threshold temporarily ? P12

A
  • E.g. significant one off sale
  • wirtten evidence
  • not over degregistration - next 12 months
  • 30 day limit - application for de-registration
43
Q

When is a person/ business classed as a taxable person ? P12

A
  • Income - trade, vocation, profession
  • membership benefits
  • activities - charity/ non profit making body

* regular * period of time

44
Q

What is the advantage and disadvantage of non -registration ? P13

A
  • More competative - noot to consumers
  • cannot claim input
45
Q

Why would a business volunteer to be registered for VAT ? P13

A
  • 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
46
Q

What type of business cannot register for VAT ? P14

A

Exempt goods

47
Q

When must a registered business notify the HMRV about change of name, trading name , or address ? p14

A

Within 30 days

48
Q

When must a business notify the HMRC about chnages in partnerhsip memebers ? P14

A

Within 30 days

49
Q

When must a business notify the HMRC about changes in bank details ? P14

A

14 days on adavance

50
Q

When must a business notify the HMRC about chnages in Business activity ? P14

A

within 30 days

51
Q

Why would a business voluntarily deregister from VAT ? P14

A
  • falls / likely to fall below threshold
  • run down - before retirement
  • decide - work part time
  • evidence needed
52
Q

How can deregistration of VAT be done ? p15

A
  • Online - VAT form
  • effective - request to dereigster received
  • agreed later date
53
Q

What is the main reason for there to be compulsory deregistration ? P15

A
  • Taxable supplies - stops making
  • 30 day notification
  • date of cessation
54
Q

What are other circumstances that also result in compulsory deregistration ? P15

A
  • Business sold
  • legal status
  • VAT group disbanded
  • Agricultural Flat Rate Scheme
55
Q

What is the main online form that a VAT reigstered business must complete ? P16

A

VAT return

56
Q

What records does the HMRC require that a VAT registered business keep, and what is this used for ? P16

A
  • VAT return is correct
57
Q

How long does the HMRC require a VAT registered business to keep its records for ? P16

A

At least 6 years

58
Q

What do VAT inspectors usually check the VAT records for ? P16

A
  • Accurate
  • complying VAT regulations
  • correct amount of VAT
  • Failure = penalty £500
59
Q

How are businesses required to store VAT records ? P17

A
  • Electronically
  • Making Tax Digital
60
Q

What will the HMRC officer usually confirm before making a visit ? P17

A
  • 7 days notice
  • information to be seen
  • length of visit
  • inspection of premises
  • business - delay request
61
Q

Does the HMRC always give notice? P17

A
  • Without appointment
  • telephone
62
Q
A

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

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