Tax Processes For Business Flashcards
VAT Rates
Standard - 20%
Lower - 5%
Zero - 0%
Output VAT
Vat Charged To Customers
Input VAT
VAT To Reclaim On Purchases
Historic Test Registration
Must notify HMRC within 30 days of the end of the month the threshold is exceeded.
Registration effective from 1st of the 2nd month after the threshold is exceeded.
Future Prospect Test Registration
HMRC must be notified BEFORE the end of the 30 day period.
Registration effective from the BEGINNING of the 30 day period.
Voluntary Registration
Can voluntarily register if they make taxable supplies.
Do it if they’re in a reclaim position.
Zero rated suppliers can apply for exemption from registration.
Voluntary De-Registration
If the taxable turnover is less than the threshold:
Business can stay registered
Ask HMRC for the registration to be cancelled
VAT on Capital Assets that has been claimed must be paid back.
Making Tax Digital
Submitting VAT Return via an accounting package.
VAT Refunds
HMRC make additional checks to validate.
Repayment is made within 10 working days.
Traders who regularly receive repayments can choose to submit monthly returns.
Annual Accounting Advantages
Reduces Admin
2 months to submit VAT return and pay balancing amount
Regular fixed payments aids budgeting
Flexible - Can make additional payments as and when you want to
Annual Accounting Disadvantages
Not useful for repayment purposes
Not useful for business with declining turnover (payments based on previous year liability)
Cash Accounting Advantages
Businesses selling on credit do not have to pay VAT until payment is received
Automatic Bad Debt Relief
Can be used alongside annual accounting scheme
Cash Accounting Disadvantages
Cannot claim input VAT until the supplier has been paid
Not suitable for businesses with mainly cash / zero rated supplies
Not attractive to business providing continuous services, or new businesses
Flat Rate Scheme
Percentage is applied to GROSS TOTAL TURNOVER - Includes all taxable and exempt supplies, excludes capital items.
No Input VAT is recovered
Flat Rate Scheme Advantages
Simplification of VAT return
Easier admin
May pay less VAT than with standard method
Aids budgeting (fixed %)
Can be used alongside annual accounting
Flat Rate Scheme Disadvantages
Not suitable for businesses:
That receive repayments
With higher than usual level of input tax (for their sector)
Making higher amount of zero rated / exempt sales than others in their sector
Business Entertaining
Can only recover VAT on entertaining staff and overseas customers
Partial Exemption
Applies to traders making taxable and exempt supplies.
Input tax relating to exempt supplies can be recovered if it is below the de minimis test.
Reverse Charges - Suppliers
No VAT charge on invoice
Amount is shown what should be charged
Must clearly state ‘Reverse Charge Invoice’
Still include net in box 6.
Reverse Charges - Customers
Pay the amount of reverse charge VAT in box 1 (output)
If goods are for business use, reclaim in box 4, put net amount in box 7.
Errors In The Control Account
Single errors can be adjusted individually - add or subtract to input / output
Multiple Errors - Must be netted off, make only ONE ENTRY to the control account.
Errors Found By HMRC
A discovery assessment may be issued (Demand to collect VAT due)
HMRC can raise an assessment 4 years after the return period, if error is careless
This can be extended to 20 years for deliberate behaviour
Exports
Goods are ZERO RATED
No VAT to be recorded in box 1
Sale value to be recorded in box 6
Imports
Need to pay VAT at customs
OR
Use Postponed Accounting
Charge themselves the output tax (box 1)
Claim the amount back as input tax (box 4)
Record the net amount in purchases (box 7)
Services
Business To Business Sales
Outside scope
Include in box 6
Services
Business To Consumer Sales
Standard Rated
Include VAT in box 1 (output)
Include sales in box 6
Services
Business To Business Purchases
Reverse Charge
Include VAT in box 1 & 4
Include purchases in box 7 & 7
