Lecture 7

Question 1

When was VAT introduced into the UK

Answer 1

VAT was introduced in the UK on 1 April 1973

Question 2

When did the UK first consider introducing VAT

Answer 2

The UK government first considered introducing VAT during the early 1960s

Question 3

What did VAT replace

Answer 3

VAT replaced the Purchase Tax

Question 4

What rate was VAT set at in 1973

Answer 4

It was set at a standard rate of 10%, with certain items subject to reduced rates and exemptions

Question 5

What was VAT increased to in 1979

Answer 5

increased to 15% in 1979

Question 6

What was VAT introduced to in 1991

Answer 6

17.5% in 1991

Question 7

What was VAT reduced to in 2008

Answer 7

reduced to 15% in 2008

Question 8

What was the standard VAT rate increased to in 2011

Answer 8

In 2011, the standard rate was increased back to 20%

Question 9

What is the scope and coverage of VAT

Answer 9

its scope has broadened to include most goods and services consumed within the UK

Question 10

Who is VAT administered by

Answer 10

VAT is administered by HM Revenue and Customs (HMRC)

Question 11

When must businesses register for VAT

Answer 11

Businesses must register for VAT if their taxable turnover exceeds the threshold set by HMRC (currently £85,000 for registration in 2024)

Question 12

What do businesses charge VAT on

Answer 12

Businesses charge VAT on sales and reclaim it on purchases

Question 13

What are the key principles of VAT

Answer 13

The key principles of VAT (Value Added Tax) in the UK are:
1. Tax on Consumption
2. Chargeable Events
3. Registration and Thresholds
4. Output and Input Tax
5. Place of Supply
6. Invoices and Record-Keeping
7. Time of Supply
8. Compliance and Reporting

Question 14

What does VAT being a consumption tax mean

Answer 14

VAT is a consumption tax, meaning it is applied to goods and services consumed within the UK

Question 15

What is VAT designed to do

Answer 15

It is designed to tax the value added at each stage of production and distribution

Question 16

What is the standard rate of VAT

Answer 16

Standard Rate: 20% (as of 2024) is applied to most goods and services

Question 17

What is the reduced rate of VAT

Answer 17

Reduced Rate: 5% applies to specific goods such as energy-saving materials, children’s car seats, and other designated items

Question 18

What is zero rate of VAT

Answer 18

Zero Rate: 0% applies to items such as most food, children’s clothes, and certain publications

Question 19

What is output tax

Answer 19

Output Tax: VAT charged on sales of goods and services by a business

Question 20

What is input tax

Answer 20

Input Tax: VAT paid on purchases made by a business for goods and services used in its operations

Question 21

What is the tax point

Answer 21

The time at which VAT becomes due is known as the “tax point”

Question 22

What is VAT registration

Answer 22

VAT registration is the process by which businesses officially notify HM Revenue and Customs (HMRC) that they are required to charge and account for VAT

Question 23

What is voluntary registration

Answer 23

Businesses with a taxable turnover below the threshold can voluntarily register for VAT if they expect their turnover to exceed the threshold in the next 30 days

Question 24

What is VAT deregistration

Answer 24

VAT deregistration is the process of notifying HMRC that a business is no longer required to charge VAT

Question 25

When must a business deregister for VAT

Answer 25

A business must deregister for VAT if its taxable turnover falls below the deregistration threshold, which is £83,000 as of 2024

Question 26

How often must businesses file VAT returns

Answer 26

Most businesses must file VAT returns every quarter

Question 27

What does VAT return include

Answer 27

The return includes details of output tax and input tax, with the difference either owed to HMRC or reclaimed from HMRC

Question 28

What are the deadlines for VAT

Answer 28

The payment deadline is one month and seven days after the end of the VAT period

Question 29

How long must businesses keep VAT records for

Answer 29

Businesses must maintain detailed records of all transactions for at least six years

Question 30

What are compliance checks

Answer 30

HMRC carries out regular VAT inspections to ensure businesses are correctly accounting for VAT

Question 31

What are VAT penalties

Answer 31

Failure to comply with VAT rules can result in penalties and interest on unpaid VAT

Question 32

What are special VAT schemes designed to simplify

Answer 32

special VAT schemes designed to simplify VAT administration

Question 33

What are the main special VAT schemes

Answer 33

the main VAT special schemes available:
1. Flat Rate Scheme (FRS)
2. Retail Scheme
3. Cash Accounting Scheme

Question 34

What is the purpose of FRS

Answer 34

Simplifies VAT accounting for small and medium-sized businesses

Question 35

What is the eligibility for FRS

Answer 35

Eligibility:
- Turnover must be below £150,000 for the last 12 months.
- Certain excluded sectors are not eligible

Question 36

How does FRS work

Answer 36

• Businesses pay a fixed percentage of their gross income as VAT, regardless of actual input and output tax
• Reduces record-keeping requirements, as detailed input tax is not required

Question 37

What’s the purpose of the rental scheme

Answer 37

Simplifies VAT calculations for retailers who sell goods directly to consumers

Question 38

What is the rental scheme eligibility

Answer 38

Retailers who deal with large volumes of low-value items, such as shops or supermarkets

Question 39

How does rental scheme work

Answer 39

• VAT is calculated based on a set formula for sales made at different tax rates
• Reduces the complexity of keeping track of individual transactions for each VAT rate

Question 40

What is the purpose of the cash accounting scheme

Answer 40

Helps businesses that have irregular cash flow by allowing them to account for VAT when payment is actually received or made

Question 41

What is the eligibility for the cash accounting scheme

Answer 41

Available for businesses with a turnover of up to £1.35 million

Question 42

How does the cash accounting scheme work

Answer 42

• VAT is recorded and accounted for when payment is received or made rather than when invoices are issued
• Simplifies cash flow management and reduces administrative burden, especially for businesses with late-paying customers

Question 43

What’s the VAT rate for goods exported from the UK

Answer 43

Goods exported from the UK are generally zero-rated for VAT purposes

Question 44

What is the VAT rate for goods exported into the UK

Answer 44

Goods imported into the UK are subject to VAT at the standard rate

Question 45

What are some exempt goods from VAT

Answer 45

Items such as basic food, health products, and goods for disabled people may be exempt from VAT

Question 46

When is VAT suspended

Answer 46

For specific goods VAT may be suspended until the goods enter circulation within the UK

Question 47

When may businesses be forced into applying a reverse charge mechanism

Answer 47

In some cases, businesses importing goods or services from the EU or other countries may be required to apply a reverse charge mechanism

Question 48

What VAT can businesses claim a refund on

Answer 48

Businesses can claim a refund of the VAT incurred on goods and services used in the production or distribution of exported goods