Module 9 - Value Added Tax

Question 1

What is VAT?

Answer 1

Value Added Tax

It is a business tax levied by the government on sales of goods and services

Question 2

In the UK, who enforces VAT

Answer 2

HMRC

Question 3

A business can only charge VAT if?

Answer 3

The business is registered for VAT

Question 4

What does HMRC enforce

Answer 4

VAT Act 1994 (VATA 1994)

Question 5

What is the standard rate of VAT?

Answer 5

20%

Question 6

VAT-registered businesses must?

Answer 6

Keep records of sales and purchases

Keep a separate summary of VAT called a VAT account (i.e., VAT is a balance not a transaction)

Issue correct VAT invoices (i.e., sales invoices with the correct VAT amount)

Question 7

VAT-registered business must…

Answer 7

Charge VAT on their goods or services (i.e., output VAT)

Question 8

VAT-registered businesses may…

Answer 8

Reclaim any VAT they’ve paid on business related goods or services (i.e., input VAT)

Question 9

How must all VAT transactions be split?

Answer 9

Question 10

What is output VAT?

Answer 10

VAT on any sales going out of the business

Question 11

When a VAT-registered business issues a sales invoice for cash/ on credit, what will the journal entry look like?

Answer 11

Question 12

What is Input VAT?

Answer 12

It is VAT charged on goods purchased / services rendered

Question 13

What is the equation when talking about Gross and VAT?

Answer 13

VAT = Gross x (20/120)

VAT = Gross x (20/100)