LECTURE 10: Corporation Tax and VAT Flashcards
VALUE ADDED TAX
Charged on the taxable supplies of goods and services made in the UK by a taxable person in the course of any business carried on by him.
TAXABLE PERSON
Registered for VAT. Every individual, partnership or company registers separately for VAT.
EG Veronica owns 2 businesses: Veronica is a taxable person
Anne owns a business and is a partner in a partnership: Anne and the partnership are each taxable persons
Tony is a director of a company and owns a business: Tony and the company are each taxable persons.
TAXABLE SUPPLY
Standard rated or zero rated or reduced rate
STANDARD RATED SUPPLIES
20% VAT charge to customers (output VAT = VAT on sales)
Supplier can reclaim input VAT (VAT on purchases, expenses, etc)
Supplies included for registration limits.
REDUCED RATE SUPPLIES
5% VAT charge to customers.
Supplier can reclaim input VAT.
Supplies included for registration limits.
ZERO RATED SUPPLIES
No VAT charge to customers
Supplier can reclaim input VAT
Supplies included for registration limits.
EXEMPT SUPPLIES
No VAT charge to customers.
Supplier cannot reclaim input VAT.
Supplies not included for registration limits.
Examples of exempt goods and services
Land and Buildings Insurance Postal Services Betting, Gaming and Lotteries Finance and Banking Education Health Burial and Cremation Subscription to Trade Unions and Professional Bodies Sports Competitions Works of Art Fund-raising events organised by charities Supplies of goods where input tax cannot be recovered Investment Gold.
Examples of zero rated goods and services
Food Water and Sewerage Books, newspapers and journals Talking books New residential buildings Listed buildings International services transport Caravans and houseboats Gold Bank Notes Drugs Exports Sales by charities Children's clothing and footwear
Examples of reduced rate supplies
Include fuel and power for domestic use, women’s sanitary products, children’s car seats, products to help stop smoking.
VAT calculation
VAT is 20% * net amount
GROSS = NET + VAT
120 100 20
120 120 120
6/6 5/6 1/6
NON-DEDUCTIBLE INPUT VAT
Input VAT cannot be reclaimed on:
- Goods and services not obtained for business purposes (may need to apportion if part business, part private use).
- Motor cars, unless car dealer, driving school, taxi, etc
- Business entertaining.
COMPULSORY REGISTRATION
A person is liable to be registered if:
a) at the end of any month the value of his taxable supplies in the last year (or since commencing to trade if trading for less than a year) has exceeded £85,000). HMRC has to be notified within 30 days of the end of the month, and registration will begin at the start of the following month.
e.g limit reached 31 March 2017 HMRC notified by 30 April 2017 registration from 1 May 2017 Registration is not required if HMRC can be satisfied that the value of taxable supplies in the following year will not exceed £83,000.
b) at any time there are grounds for believing that the value of his taxable supplies in the next 30 days will exceed £85,000. HMRC has to be notified by the end of the 30 day period, and registration will begin at the start of the 30 day period.
E.g. supplies exceed limit during April 2017. HMRC notified by 30 April 2017, registration from 1 April 2017.
Pros of voluntary registration
- Allows trader to claim back input VAT from HMRC
- Image - registration may give the impression of a substantial business
Cons of registration
- Increase in sales price to non-registered customers
- Additional admin
- Penalty regime
