Seminar 10 - Self-Study Topic VAT Flashcards
what is the period covered by VAT referred to as?
VAT period or Tax period
normally, how long is the VAT period?
3 months
in what instance will HMRC allow someone to have a 1 month VAT period?
if their input tax exceeds their output tax
(they’re in a net repayment position)
who can submit an annual VAT return?
small businesses can submit an annual VAT return
(one VAT return per year)
how must all VAT registered businesses submit their VAT returns?
online
returns must be submitted electronically
when must VAT returns be submitted?
must be submitted 7 days after the last day of the month following the end of the return period
(e.g., return date is 01/07, must be submitted 07/09)
if payment is made by direct debit, when is it collected?
if payment is made by direct debit, its automatically collected a further 3 days after the due date
who are ‘substantial traders’?
taxable persons with over £2.3 million VAT liability
when must substantial traders make payments?
on account for each quarter electronically
payments are due at the end of the second & third months of the quarter
the amount of each payment is 1/24 of the total VAT liability for the previous year
the balancing payment for the quarter is due with the VAT return at the end of the month following the end of the quarter
what are annual accounting schemes?
scheme whereby the VAT return is due within 12 months of the end of the year
helps small businesses reduce admin work and submit only 1 VAT return per year
under what condition can a business join the annual accounting scheme?
if their taxable turnover/expected taxable turnover doesn’t exceed £1.35 million
businesses already in the annual accounting scheme can continue until the value of their taxable supplies in the previous 12 months exceeds £1.6 million
how does the annual accounting scheme require traders to make payments on account?
either as 9 interim payments throughout the year
or 3 quarterly payments throughout the year
the traders must then pay any outstanding VAT or receive refunds for overpaid VAT, after the end of the year
in total, trader will either make 10 or 4 payments on account
if the trader makes 9 monthly payments…
each payment will be electronic
each payment will be 10% of total VAT liability for the previous year or 10% of the estimated VAT liability for the current year (if the trader has been registered for less than 12 months)
the first payment is due at the end of the 4th month, and every month after that
if the trader makes 3 quarterly payments…
each payment must be electronic
each payment must be 25% of the previous year’s VAT liability or 25% of the estimated liability for the current period (if the traders been registered for less than 12 months)
payments are due by the end of the 4th, 7th and 10th month of the annual accounting year
what are the main advantages of the annual accounting scheme?
the reduction in the number of VAT returns required
2 months to complete the annual return and make the balancing payment
can the annual accounting scheme be used in conjunction with the cash accounting scheme and/or the flat rate scheme?
yes
under what condition can a business join the cash accounting scheme?
if taxable turnover in the following year isn’t expected to exceed £1.35 million
the business must have submitted all its VAT returns to date and paid all outstanding VAT
business mustn’t have been convicted of a VAT offence/penalty in the previous 12 months
under what condition can businesses continue under the cash accounting scheme?
can continue until their taxable turnover in the previous 12 months exceeds £1.6 million
what are the main advantages of the cash accounting scheme?
output VAT doesn’t have to be accounted for until payment is received from customers
automatic bad debt relief since no output VAT is payable if payment isn’t received
disadvantage with the cash accounting scheme?
no input VAT can be recovered until the business has actually paid the supplier for the purchase
how does the flat rate scheme work?
a flat rate percentage is set by the type of business carried on:
4% for food retailers
14.5% for building & construction services
14.5% for accountancy services
16.5% fixed percentage for limited cost traders
how is VAT payable to HMRC at the end of the VAT period calculated?
flat rate % x the VAT-inclusive turnover for the period
is there a deduction for input VAT with the flat rate scheme?
no
what does the VAT inclusive turnover include?
taxable supplies, exempt supplies and supplies of capital assets
under what condition can a business join the flat rate scheme?
if their taxable turnover doesn’t exceed £150,000
what are the main advantages of the flat rate scheme?
reduction in the burden of preparing VAT returns as no records of input VAT need to be kept
frequently less VAT payable to HMRC than under the normal rules
when must a business leave the flat rate scheme?
if total annual income exceeds £230,000 (including exempt income)
what does HMRC require all taxable persons to do regarding their output & input VAT?
keep adequate record of all transactions to support output VAT charged and input VAT recoverable
what are the main sources of keeping track of transactions?
invoices
credit/order/delivery notes
tills
cash book
bank statements/financial statements
what is the purpose of the VAT invoice?
the key record to support claim to recover input VAT
must be issued when a taxable person makes a taxable supply to another taxable person
what must VAT invoices include?
unique identification number
name, address & contact info
goods/services description
discount offered
date of invoice/tax point
price/quantity/rate of VAT for each item
must a trader issue a VAT invoice for every transaction?
yes
simplified VAT invoice = ?
a less detailed invoice can be issued for supplies under £250
modified VAT invoice = ?
can be issued for retail supplies over £250
