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BUS167 - Principles of Taxation > Seminar 10 > Flashcards

Seminar 10 Flashcards

1
Q

what is VAT?

A

value added tax

an indirect tax on spending

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2
Q

who are required to charge VAT?

A

registered traders are required to charge VAT when selling goods/services

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3
Q

when selling goods/services to customers, which VAT must traders account for?

A

output VAT

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4
Q

what is the purpose of input tax?

A

input VAT allows traders to recover VAT on their purchases & expenses

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5
Q

who is VAT ultimately borne by?

A

VAT is borne by the end consumer who pays VAT when buying supplies but cannot reclaim input VAT on it

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6
Q

borne = ?

A

one is responsible to pay for a certain tax

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7
Q

when is VAT charged?

A

when a taxable supply is made by a taxable person

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8
Q

taxable person = ?

A

someone who should be paying for VAT

someone who is registered for VAT

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9
Q

who can be a taxable person?

A

can refer to a sole trader, a partnership or company as long as they supply goods/services

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10
Q

taxable supply = ?

A

any supply of goods/services which isn’t exempt nor outside the scope of VAT

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11
Q

what are the three categories of supplies?

A

outside the scope of VAT
exempt supplies
taxable supplies

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12
Q

supply of goods = ?

A

goods being passed from one person to another

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13
Q

examples of supply of goods?

A

a sale of goods to customers

gifting of assets (non-exempt)

goods taken out of the business by owner or employee for private use

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14
Q

supply of services = ?

A

any supply for money which isn’t a supply of goods

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15
Q

examples of supply of services?

A

sale of services

customer hiring goods

business services privately used by employee/employer

private use of fuel by owner/employee

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16
Q

which supplies are outside the scope of VAT?

A

payment of wages

dividends

sale of shares

(these supplies aren’t subject to VAT)

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17
Q

what supplies are exempt from VAT?

A

land

insurance

postal services

(these supplies aren’t subject to VAT)

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18
Q

what are the three categories for taxable supplies?

A

zero rated (0%)

reduced rate (5%)

standard rate (20%)

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19
Q

a taxable supply is…

A

a supply on which output VAT is chargeable and input VAT can be recovered

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20
Q

what is the difference between zero rated supplies and exempt supplies?

A

input VAT can be recovered on zero rated supplies

no input VAT can be recovered on exempt supplies

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21
Q

what are examples of zero rated supplies?

A

certain human foods & animal foods

books & newspaper (including digital versions of both)

dispensing of drugs/prescribed medicine

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22
Q

examples of reduced rated supplies?

A

domestic fuel

children’s car seats

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23
Q

which supplies are standard rated?

A

any supply which isn’t reduced rated is standard rated

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24
Q

which category of taxable supplies does ‘luxury food items’ fall into?

A

standard rate of 20%

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25
Q

most human foods fall into which category of taxable supplies?

A

zero rated

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26
Q

standard rate inclusive/exclusive calculation = ?

A

VAT inclusive = 1/6 x price
VAT exclusive = 1/5 x price

27
Q

reduced rate inclusive/exclusive calculation = ?

A

VAT inclusive = 1/21 x price
VAT exclusive = 1/20 x price

28
Q

what does the VAT inclusive price include?

A

taxable supply + VAT

29
Q

what does the VAT exclusive price include?

A

only the taxable supply

30
Q

taxable turnover = ?

A

total value of the taxable supplies made by a taxable person

31
Q

when must someone register for VAT with HMRC?

A

if their taxable turnover is over £85,000

32
Q

when doesn’t someone have to register with HMRC for VAT?

A

if their predicted taxable turnover for the following 12 months won’t exceed the deregistration threshold of £83,000

33
Q

when is registration for VAT also required, besides exceeding £85,000 taxable turnover?

A

if its predicted that taxable turnover will exceed the registration threshold (£85,000)

34
Q

when must one notify HMRC of their liability to register for VAT?

A

if taxable turnover for previous 12 months exceeds registration threshold (85,000), the person must notify HMRC within 30 days of the end of the month in which the threshold was exceeded

35
Q

when does registration for VAT take effect?

A

after the end of the month following the month in which the threshold was exceeded

e.g., threshold was exceeded in March… after the end of April, VAT will be in effect

36
Q

if a person believes that taxable turnover for the next 30 days will exceed 85,000, what should they do?

A

notify HMRC by the end of the 30 day period

37
Q

a person who fails to apply for VAT registration…

A

is still liable to account for output VAT on taxable turnover from the compulsory registration date, as if the registration had taken place at the correct time

38
Q

how is taxable turnover treated?

(VAT inclusive or VAT exclusive amount?)

A

VAT Inclusive amount is what is regarded as the taxable turnover

39
Q

if taxpayer fails to notify HMRC of the liability to register…

A

a penalty is payable

40
Q

can a person under the registration threshold still register for VAT with HMRC?

A

yes

often to make it look like they sell taxable supplies worth more than £85,000

it also enables them to collect input VAT, but means output VAT must be charged to customers

41
Q

under what conditions can a registered person deregister voluntarily?

A

if HMRC is convinced that taxable turnover won’t exceed 85,000 in the next 12 months

42
Q

when is compulsory deregistration triggered?

A

when a person ceases trading

or if a person’s legal status changes (e.g., sole trader gets married)

43
Q

what are the consequences of deregistration?

A

the person is deemed to make a supply of all the tangible assets of the business & output VAT is charged on this

assets on which no input tax was reclaimed are excluded from the deemed supply and output and the output tax due isn’t collected if it doesn’t exceed £1,000

the deemed supply doesn’t take place if the business is sold

44
Q

time of supply = ?

A

tax point

the date of supply on which VAT is due

45
Q

basic tax point = ?

A

goods: when made available to the customer

services: when completed

46
Q

actual tax point = ?

A

the earlier of the invoice date or the date of the payment

47
Q

when is actual tax point used?

A

if invoice is issued or payment is received before the basic tax point (before goods/services are provided)

or if tax invoice is issued within 14 days after the basic tax point

e.g., goods provided 01/04, invoice issued 09/04… invoice issuance date of 09/04 is used (actual tax point)

48
Q

if a deposit is paid, what is the tax point?

A

the deposit date is its own tax point, and there’s a separate tax point for the balancing payment

49
Q

value of a supply = ?

A

the figure on which VAT is calculated

usually the VAT exclusive price charged to the customer

50
Q

what is the value of a supply when the supply is a gift of assets?

A

the VAT exclusive amount that would be payable by the person making the supply at that time to purchase goods (replacement cost)

51
Q

if the customer gets a discount for prompt payment, what is the value of the supply?

A

the value of the supply is the price charged less any cash discount taken by the customer

this rule only applies to prompt payment discounts

the issue is that it’s unknown at the point of invoice whether or not prompt payment will be made

52
Q

what are the 2 approaches that can be made to prompt payment discounts?

A

you can charge VAT on undiscounted amount, then issue a credit note if prompt payment is made

OR

the initial invoice can contain the terms of the discount & state the customer can recover the VAT paid as input tax

53
Q

how is fuel provided for private motoring by employee/employer charged?

A

charged at a scale rate

54
Q

what is the fuel scale charge solely based on?

A

the CO2 rating of the car and represents the VAT inclusive value of the fuel supplied

55
Q

how is output VAT accounted for?

A

output VAT is accounted for according to the tax point and therefore may be payable before payment of an invoice has been received

56
Q

where an invoice hasn’t been paid for more than 6 months after the due date and the bad debt has been written off, what happens?

A

bad debt relief is available

57
Q

when must bad debt claims be made?

A

within 4 years of the time the debt became eligible for relief

the VAT is reclaimed in the supplier’s VAT return together with input VAT on purchases

58
Q

under what condition can one receive input VAT?

A

goods/services must actually be supplied

input VAT recoverable must be supported by an invoice

goods/services must be used for business purposes

59
Q

what happens when goods/services are partially used for private use?

A

can either deduct all input tax & account only for output tax with respect to private use

OR

deduct only business proportion of input tax

(when services are bought for private use partially, only the second method can be used)

60
Q

is input VAT recoverable on fuel supplied for private use?

A

yes, when the VAT scale charge for output tax applies

61
Q

is input tax on assets purchased for private use by employees allowable?

A

yes

62
Q

for which assets are input VAT not recoverable?

A

motor cars (unless exclusively used for business purposes)

goods & services used for entertaining

non-business items

items for which no VAT receipt is held

63
Q

can input VAT be recovered on goods supplied in the 4 years before registration?

A

yes

the goods must have been supplied for business use, and must still be on hand (in possession) at the point of registration

64
Q

can input VAT be recovered on services supplied 6 months before registration?

A

yes

the services must have been supplied for business purposes

BUS167 - Principles of Taxation (16 decks)

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