Tax Processes For Business

Question 1

VAT Rates

Answer 1

Standard - 20%
Lower - 5%
Zero - 0%

Question 2

Output VAT

Answer 2

Vat Charged To Customers

Question 3

Input VAT

Answer 3

VAT To Reclaim On Purchases

Question 4

Historic Test Registration

Answer 4

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.

Question 5

Future Prospect Test Registration

Answer 5

HMRC must be notified BEFORE the end of the 30 day period.

Registration effective from the BEGINNING of the 30 day period.

Question 6

Voluntary Registration

Answer 6

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.

Question 7

Voluntary De-Registration

Answer 7

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.

Question 8

Making Tax Digital

Answer 8

Submitting VAT Return via an accounting package.

Question 9

VAT Refunds

Answer 9

HMRC make additional checks to validate.
Repayment is made within 10 working days.

Traders who regularly receive repayments can choose to submit monthly returns.

Question 10

Annual Accounting Advantages

Answer 10

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

Question 11

Annual Accounting Disadvantages

Answer 11

Not useful for repayment purposes
Not useful for business with declining turnover (payments based on previous year liability)

Question 12

Cash Accounting Advantages

Answer 12

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

Question 13

Cash Accounting Disadvantages

Answer 13

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

Question 14

Flat Rate Scheme

Answer 14

Percentage is applied to GROSS TOTAL TURNOVER - Includes all taxable and exempt supplies, excludes capital items.
No Input VAT is recovered

Question 15

Flat Rate Scheme Advantages

Answer 15

Simplification of VAT return
Easier admin
May pay less VAT than with standard method
Aids budgeting (fixed %)
Can be used alongside annual accounting

Question 16

Flat Rate Scheme Disadvantages

Answer 16

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

Question 17

Business Entertaining

Answer 17

Can only recover VAT on entertaining staff and overseas customers

Question 18

Partial Exemption

Answer 18

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.

Question 19

Reverse Charges - Suppliers

Answer 19

No VAT charge on invoice
Amount is shown what should be charged
Must clearly state ‘Reverse Charge Invoice’
Still include net in box 6.

Question 20

Reverse Charges - Customers

Answer 20

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.

Question 21

Errors In The Control Account

Answer 21

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.

Question 22

Errors Found By HMRC

Answer 22

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

Question 23

Exports

Answer 23

Goods are ZERO RATED

No VAT to be recorded in box 1
Sale value to be recorded in box 6

Question 24

Imports

Answer 24

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)

Question 25

Services
Business To Business Sales

Answer 25

Outside scope
Include in box 6

Question 26

Services
Business To Consumer Sales

Answer 26

Standard Rated
Include VAT in box 1 (output)
Include sales in box 6

Question 27

Services
Business To Business Purchases

Answer 27

Reverse Charge
Include VAT in box 1 & 4
Include purchases in box 7 & 7