Taxation in CFS Flashcards
What items can input VAT usually not be recovered?
Cars and entertaining
Are debenture interest and patent royalties paid gross or net of VAT?
Net
What is the correct journal entry for payment of a patent royalty by a company to an individual?
Debt payment royalty expense (gross)
Credit bank (net amount)
Credit income tax control account (income tax)
What is the flat rate of VAT designed to do?
To simplify VAT and lessen the administrative burden for small businesses
Are patent royalty payments received by companies from individuals net or gross of income tax?
They are net of the basic rate of income tax
What is the correct entry for an over VAT adjustment?
Debit corporation tax creditor account
Credit corporation tax expense
What is the correct entry for an under VAT adjustment?
Debit corporation tax expense / corporation tax charge
Credit corporation tax creditor account
In respect of deferred tax, what are two examples of permanent differences?
Dividends received and business entertaining
In respect of deferred tax, what is an example of timing differences?
Depreciation policies
Under the flat rate scheme for VAT, the VAT payable is calculated upon what figure?
Turnover gross of VAT
How is income tax accounted for by companies when making patent royalty and debenture interest payments to individuals?
Deducted at source
How is patent royalty income received accounted for in the income tax control account?
There is no entry to the income tax control account for the patent royalty income received.
How is payment royalty income paid accounted for in the income tax control account?
The income tax control account is credited in respect of the debenture interest paid
What is the credit entry in respect of debenture interest paid?
Credit income tax control account
How should dividends received be treated when preparing financial statements?
Dividends received should be added to the actual tax charge
What is the correct journal entry for recording cash purchases in a VAT registered business?
Purchases (VAT exclusive amount)
Bank (VAT inclusive amount)
VAT control account (input VAT)
When is corporation tax due normally payable?
9 months and 1 day after the end of the accounting period
How should the tax on dividends received be treated in the financial statements?
The tax on dividends should be added to, not deducted from, the actual tax charge
Which side should the journal entries of corporation tax, corporation tax due for the period and adjustment for under provision of corporation tax go on the corporation tax creditor account?
Corporation tax - Debit
Corporation tax due for the period - Credit
Adjustment for under provision of corporation tax - Credit
What does deferred tax do?
Corrects distortions caused by timing differences in accounting and taxable profits
