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Tax processes for businesses (finance act 2023) > The VAT return, errors, and penalties > Flashcards

The VAT return, errors, and penalties Flashcards

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1
Q

What will remain the same , despite businesses now using accounting software to submit vat returns ? P75

A
  • Periodic collection
  • e.g. - normally, quarterly
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2
Q

What are the basic records a business must maintain relating specifically to VAT 7 points? P75

A
  • Sale invoices
  • purchase invoices
  • credit/ debit notes
  • cash / petty cash
  • documents - goods exported
  • deposits, advance payment , delayed payment
  • VAT control account
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3
Q

What records are needed to record output tax ? P76

A
  • Sales daybook
  • Sales return daybook
  • Cashbook - receipt
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4
Q

When recording output tax, what is includeed in a sales daybook ? P76

A
  • Sales on credit = Sales invoices
  • VAT analysis - output calculation
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5
Q

What is included in the sales returns day book , when recording output tax ? P76

A
  • Credit given
  • output tax deduction
  • VAT analysis - credit/ debit notes
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6
Q

What is included in the cashbook receipt side, when recording for output tax ? P76

A
  • receipts - not on credit
  • VAT analysis
  • receipt from credit customers - NORMALLY not
  • receipt from credit customers - cash accounting scheme
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7
Q

What records are needed for input tax ? P76

A

Purchase daybook
Purchase return daybook
Cashbook - payment side

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8
Q

What is included in the purchase daybook ? p76

A
  • Purchases on credit (invoices?)
  • VAT analysis - input vat total
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9
Q

What is included in a purchases returns daybook ? P76

A
  • Credit received
  • input tax - deduction
  • VAT analysis - credit/ debit notes
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10
Q

What is included in the cashbook payment side, when recording for input tax ? P77

A
  • Brought - non credit basis
  • credit purchases - NORMALLY ignored
  • cred9t -urchases - cash accounting system
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11
Q

Aside from a cash book payment side, what does a business need to account for input vat tax ? P77

A
  • Petty cash book
  • VAT column - small expenses
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12
Q

What is the central record for any VAT registered business’ bookeeping system ? P77

A

VAT control account

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13
Q

What is included on the debit side of a VAT control account ? 9 points P79

A
  • Input tax
  • purchases daybook
  • cash book
  • petty cash book
  • postponed VAT imports ( same as credit side)
  • bad debt relief
  • acquisition into northern ireland
  • reverse charge
  • error correction
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14
Q

What is included on the credit side of a VAT control account ? P79

A
  • Output tax
  • Sales Daybook
  • Cash book
  • Postponed VAT on imports (same as debit)
  • Error correction
  • reverse charge
  • fuel scale charge
  • private usuage
  • supplies to employees
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15
Q

Where does the VAT calculation go on the control account ? P80

A
  • Left side - money to reclaim
  • Right side - money to be paid
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16
Q

How is the VAT actually paid / reclaimed for the previous VAT period treated in the VAT account ? P80

A
  • Not included - VAT account
  • Opening balance = money paid/ reclaimed
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17
Q

What can a business do if they find an error in a previous VAT period ? P80

A

Adjust - current VAT return

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18
Q

What must an error be in a previous VAT period for the business to be able to adjust ? P80

A
  • Below reporting threshold
  • not deliberate
  • accounting period = < 4 years before
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19
Q

What is the error reporting threshold the greater of ? P81

A
  • £10K or less
  • 1 % all net outputs (vat exc) - 50K
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20
Q

What can be done if the error threshold is not exceeded ? P81

A
  • net errors > error reporting threshold
    + amount due sales + other output (box 1)
    + amount to reclaim + other purchases (box 4)
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21
Q

What is a net error ? P81

A
  • total error (input tax) - total error (output tax)
    *
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22
Q

What if the error is the over the reporting threshold ? P81

A
  • HMRC ‘voluntary disclosure’
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23
Q

What are the main boxes within the VAT account ? P81

A
  1. VAT - sales and other outputs
  2. Acquisitions of goods - Northern Ireland from EU member states
  3. Total VAT due
  4. VAT - purchases and other inputs
  5. VAT - pay/ reclaim
  6. Total value - sales and all outputs (no VAT)
  7. Total value - purchases all outputs (no VAT)
  8. Total of supplies -Northern Ireland > EU member states
  9. Total of acquisitions - EU member states > Northern Ireland
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24
Q

What is included in box 1 of a VAT return in more detail ? 7 points P81

A
  • Imports - postponed accounting
  • fuel scale charges
  • reverse charge VAT
  • supplies to employees
  • private usuage
  • credit notes given
  • error corrections
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25
Q

What is included in box 4 of the vat return in more detail ? P82 - 6 points

A
  • Imports - postponed acconting
  • reverse charge
  • acquisition of goods in NI (box 2 )
  • bad debt relief
  • supplier credit notes
  • error correction
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26
Q

What does box 6 in the VAT reutrn contain ? P82

A
  • Exempt
  • Standard
  • Zero-rated supplies
  • Supplies to EU and non -EU states
  • fuel scale charge - net amount
  • tota adjusted - credits issued
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27
Q

What does box 7 in the VAT return contain ? P82 7 points

A
  • Net value - purchases and expenses
  • standard
  • zero
  • exempt
  • imports and acquisition of good into NI
  • reverse charge
  • total adjusted - credits issued
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28
Q

What is bad debt ? P84

A
  • Amount owing - written off
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29
Q

What is bad debt relief ? P84

A
  • VAT scheme
  • claim back VAT - already paid over to HMRC
  • No chance recovery
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30
Q

What are the conditions for bad debt relief ? P84

A
  • More then 6 months - less than 4 years and 6 months overdue
  • separate bad debt account
  • no facotring company
  • not charge more - normal selling price
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31
Q

Where on the VAT return can a business add the figure reclaiming bad debt, if the criteria for bad debt is satisified ? P84

A
  • ADD - box 4 - VAT return
32
Q

What happens to bad debt under the cash accounting scheme ? P84

A
  • Cannot be reclaied
  • VAT not paid - after customer paid business
33
Q

What is making tax digital ? P85

A
  • Initiative - accounts in digital format
  • effiecient administration of tax
34
Q

What must a business that is required to comply with MTD have and use ? P85

A
  • Compatible accounting software
  • maintaining accounting records
  • VAT returns
  • API (Application Programming Interface) - VAT return
  • gov website - software check
35
Q

What is a business’ turnover goes from above the threshold to being back below the threshold, and they are submitting tax digitally ? P85

A
  • keep and submit digitally
  • deregistration / exemption criteria = no digital records
  • digital preservation - accouunting records
36
Q

What is the deadline for submitting a VAT return ? P85

A

One month 7 days - end of VAT period
Not annual accounting scheme
Annual accounting - 2 months from end of vat year

37
Q

For example, if a business with a standard quarterly scheme had a quarter ending 30th April, when must they submit the VAT return ? P85

A
  • 7th June
38
Q

What must then happen once the VAT return has been submitted ? P85

A
  • Electronic payment:
  • direct debit
  • BACS
  • if DD = three working days after VAT return submission date
39
Q

What happens if the business fails to pay the HMRC by the deadline , or has insufficient funds once payment is trying to be collected ? P86

A

Penalised

40
Q

What must happen if box 5 in the VAT return advises of a refund due from the HMRC ? P86

A
  • HMRC schedule repayment
  • Within 10 working days
  • Up to 21 days - HMRC has query
41
Q

Why may payment by the HMRC not be made back to the business, even if there’s an amount owed by the HMRC ? P86

A

Outstanding amount owed to the HMRC

42
Q

What should happen with VAT accounts if the accounts of the business have been kept correctly ? P86

A

Balance of VAT return = balance of VAT control account

43
Q

What if the VAT on the control account does not match with the VAT on the return account ? P86

A
  • Investigation
  • mis-posting to VAT control account
  • error/omissions - VAT reutrn
44
Q

What are the main reasons for differences between the VAT control account and the VAT return account ? P86

A
  • Data transferral - from computerised accounting system
  • accounting software incorrect setup - e.g. incorrect vat scheme :
  • flat rate scheme on normal scheme = incorrect amount to HMRC
  • cash accounting scheme - payment only
  • normal schemes - credit items
45
Q

What happens if a business submits a VAT reutrn late ? P91

A
  • Late submission penalites
  • Points based system
46
Q

How does the point based system on late submission of VAT returns work ? P91

A
  • Penalty point - each return
  • Unitl penalty point threshold - £200
  • subsequent late submission - points threshold
  • newly registered business - exempt first late reutn
    *
47
Q

What is the late submission points threshold for returns submitted quarterly ? P91

A

4 points

48
Q

What is the late submission points threshold for returns submitted annually ? P91

A

2 points

49
Q

What happens to the penalty points if the business hasn ot reached the late submission threshold ? P92

A
  • Points expire automatically - two years
  • 1st day of month - after month of late submission
50
Q

When will the points expire for the late submission of a return for VAT quarter ending 31st March 2023 ? P92

A
  • 7th May 2023 - date of submission
  • So - from 1st June 2023
  • Answer - 1st June 2025
51
Q

If a business has reached the late submission penalty threshold , when is the only time the points can be reset to zero ? P92

A
  • Complete a period of compilance
  • Submission of all outstanding returns (previous 24 months) - overdue or not
52
Q

What does a period of compilance refer to ? P92

A
  • Submission all returns on time
  • 1st day - month following day after missed deadline
53
Q

When would a period of compilance begin from , if there is a missed submission date of 7th August ? P92

A

1st September

54
Q

If on an annual scheme, when would the period of compilance start for a missed submission date of 30 June ? P92

A
  • 1st August
55
Q

What is the length of the period of compilance for a business that submits VAT returns quarterly ? P92

A
  • 12 Months
  • need 4 on time submissions
56
Q

What is the length of the period of compilance for a business that submits VAT returns annually? p92

A
  • 24 months
  • need 2 on time submissions
57
Q

What is meant by submission of all outstanding returns ( condition B) of removal ofv penalty points ? P93

A
  • Previous 24 months
  • Includes period of compilance
58
Q

What is the deadline of payment for VAT for businessses that do not pay DD to the HMRC ? P94

A
  • One month and 7 days - end of VAT quarter
59
Q

What can the late penalties on payments be applied to ? P94

A
  • VAT return
  • amendment to return / correction
  • VAT assessment - non submission / another reason
60
Q

When do late payment penalties not apply ? P94

A
  • VAT payments on account
  • installments - VAT annual scheme
61
Q

When will a business get it’s first late payment fee ? P94

A
  • 16 / more days overdue
  • none - first 15 days
  • penalty = 2% = outstanding balance on day 15
62
Q

What if a business’ first late payment goes 31 or more days overdue ? P94

A
  • Increases
  • second late payment penalty
  • 2% outstanding on 15 and further 2% on outstanding at 30
  • daily rate - 4% per annum - day 31 cuntil paid in full
63
Q

How would the interests on late payments be calculated if the balance is more than 31 days ? P94

A

Overdue balance * 4% * days spent overdue / 365

64
Q

What does the HMRC charge in addition to late payment penalties ? P96

A
  • Late payment interests
65
Q

What payments would incur further interests charges ? P96

A
  • Amounts overdue on:
  • VAT return
  • amendments/ corrections of VAT returns
  • VAT assessment
  • Missed VAT payment - annual accounting
66
Q

What penalties will incurr further interests chargee ? P96

A
  • all penalties
  • inc
  • late payment penalties - late payment on VAT
  • late submission penalties - non submission on time
    *
67
Q

How long are interests charges for late payments ( not first late penalty) applied for , and how is this calculated ? P96

A
  • First day = payment overdue
  • until full payment
  • Bank of England base rate + 2.5 %
68
Q

In what circumstances can the business claim interests, following the mistake of HMRC ? P97

A
  • Pays too much VAT
  • reclaims too little VAT
  • payment from HMRC delayed
69
Q

How is interests incurred on payments due back from HMRC calculated ? P97

A
  • Bank of england:
  • base rate minus 1 %
  • minimum rate 0.5%
70
Q

When does the HMRC repayment interests apply ? P97

A
  • whole period : VAT was overpaid / reclaimed - HMRC is authorised
71
Q

When will the HMRC not pay any interests on amount? P97

A

Business mistake

72
Q

What will a business be issued with in addition to penalties and interests for late payment ? P97

A

VAT notcie of assessment of tax - HMRC thinks owe

73
Q

What if a business has been provided with an assessment and it’s actually too low ? P97

A
  • 30 days to notifty
  • or additional 30 % of assessment amount
74
Q

What if a business submits a paper VAT return , when it should be submitting returns digitally ? P97

A

£400 penalty

75
Q

What if a business fails altogether to pay VAT due or penalties imposed? P97

A

Criminal offence

Tax processes for businesses (finance act 2023) (6 decks)

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