The VAT return, errors, and penalties Flashcards
What will remain the same , despite businesses now using accounting software to submit vat returns ? P75
- Periodic collection
- e.g. - normally, quarterly
What are the basic records a business must maintain relating specifically to VAT 7 points? P75
- Sale invoices
- purchase invoices
- credit/ debit notes
- cash / petty cash
- documents - goods exported
- deposits, advance payment , delayed payment
- VAT control account
What records are needed to record output tax ? P76
- Sales daybook
- Sales return daybook
- Cashbook - receipt
When recording output tax, what is includeed in a sales daybook ? P76
- Sales on credit = Sales invoices
- VAT analysis - output calculation
What is included in the sales returns day book , when recording output tax ? P76
- Credit given
- output tax deduction
- VAT analysis - credit/ debit notes
What is included in the cashbook receipt side, when recording for output tax ? P76
- receipts - not on credit
- VAT analysis
- receipt from credit customers - NORMALLY not
- receipt from credit customers - cash accounting scheme
What records are needed for input tax ? P76
Purchase daybook
Purchase return daybook
Cashbook - payment side
What is included in the purchase daybook ? p76
- Purchases on credit (invoices?)
- VAT analysis - input vat total
What is included in a purchases returns daybook ? P76
- Credit received
- input tax - deduction
- VAT analysis - credit/ debit notes
What is included in the cashbook payment side, when recording for input tax ? P77
- Brought - non credit basis
- credit purchases - NORMALLY ignored
- cred9t -urchases - cash accounting system
Aside from a cash book payment side, what does a business need to account for input vat tax ? P77
- Petty cash book
- VAT column - small expenses
What is the central record for any VAT registered business’ bookeeping system ? P77
VAT control account
What is included on the debit side of a VAT control account ? 9 points P79
- 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
What is included on the credit side of a VAT control account ? P79
- 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
Where does the VAT calculation go on the control account ? P80
- Left side - money to reclaim
- Right side - money to be paid
How is the VAT actually paid / reclaimed for the previous VAT period treated in the VAT account ? P80
- Not included - VAT account
- Opening balance = money paid/ reclaimed
What can a business do if they find an error in a previous VAT period ? P80
Adjust - current VAT return
What must an error be in a previous VAT period for the business to be able to adjust ? P80
- Below reporting threshold
- not deliberate
- accounting period = < 4 years before
What is the error reporting threshold the greater of ? P81
- £10K or less
- 1 % all net outputs (vat exc) - 50K
What can be done if the error threshold is not exceeded ? P81
- net errors > error reporting threshold
+ amount due sales + other output (box 1)
+ amount to reclaim + other purchases (box 4)
What is a net error ? P81
- total error (input tax) - total error (output tax)
*
What if the error is the over the reporting threshold ? P81
- HMRC ‘voluntary disclosure’
What are the main boxes within the VAT account ? P81
- VAT - sales and other outputs
- Acquisitions of goods - Northern Ireland from EU member states
- Total VAT due
- VAT - purchases and other inputs
- VAT - pay/ reclaim
- Total value - sales and all outputs (no VAT)
- Total value - purchases all outputs (no VAT)
- Total of supplies -Northern Ireland > EU member states
- Total of acquisitions - EU member states > Northern Ireland
What is included in box 1 of a VAT return in more detail ? 7 points P81
- Imports - postponed accounting
- fuel scale charges
- reverse charge VAT
- supplies to employees
- private usuage
- credit notes given
- error corrections
What is included in box 4 of the vat return in more detail ? P82 - 6 points
- Imports - postponed acconting
- reverse charge
- acquisition of goods in NI (box 2 )
- bad debt relief
- supplier credit notes
- error correction
What does box 6 in the VAT reutrn contain ? P82
- Exempt
- Standard
- Zero-rated supplies
- Supplies to EU and non -EU states
- fuel scale charge - net amount
- tota adjusted - credits issued
What does box 7 in the VAT return contain ? P82 7 points
- Net value - purchases and expenses
- standard
- zero
- exempt
- imports and acquisition of good into NI
- reverse charge
- total adjusted - credits issued
What is bad debt ? P84
- Amount owing - written off
What is bad debt relief ? P84
- VAT scheme
- claim back VAT - already paid over to HMRC
- No chance recovery
What are the conditions for bad debt relief ? P84
- 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
Where on the VAT return can a business add the figure reclaiming bad debt, if the criteria for bad debt is satisified ? P84
- ADD - box 4 - VAT return
What happens to bad debt under the cash accounting scheme ? P84
- Cannot be reclaied
- VAT not paid - after customer paid business
What is making tax digital ? P85
- Initiative - accounts in digital format
- effiecient administration of tax
What must a business that is required to comply with MTD have and use ? P85
- Compatible accounting software
- maintaining accounting records
- VAT returns
- API (Application Programming Interface) - VAT return
- gov website - software check
What is a business’ turnover goes from above the threshold to being back below the threshold, and they are submitting tax digitally ? P85
- keep and submit digitally
- deregistration / exemption criteria = no digital records
- digital preservation - accouunting records
What is the deadline for submitting a VAT return ? P85
One month 7 days - end of VAT period
Not annual accounting scheme
Annual accounting - 2 months from end of vat year
For example, if a business with a standard quarterly scheme had a quarter ending 30th April, when must they submit the VAT return ? P85
- 7th June
What must then happen once the VAT return has been submitted ? P85
- Electronic payment:
- direct debit
- BACS
- if DD = three working days after VAT return submission date
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
Penalised
What must happen if box 5 in the VAT return advises of a refund due from the HMRC ? P86
- HMRC schedule repayment
- Within 10 working days
- Up to 21 days - HMRC has query
Why may payment by the HMRC not be made back to the business, even if there’s an amount owed by the HMRC ? P86
Outstanding amount owed to the HMRC
What should happen with VAT accounts if the accounts of the business have been kept correctly ? P86
Balance of VAT return = balance of VAT control account
What if the VAT on the control account does not match with the VAT on the return account ? P86
- Investigation
- mis-posting to VAT control account
- error/omissions - VAT reutrn
What are the main reasons for differences between the VAT control account and the VAT return account ? P86
- 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
What happens if a business submits a VAT reutrn late ? P91
- Late submission penalites
- Points based system
How does the point based system on late submission of VAT returns work ? P91
- Penalty point - each return
- Unitl penalty point threshold - £200
- subsequent late submission - points threshold
- newly registered business - exempt first late reutn
*
What is the late submission points threshold for returns submitted quarterly ? P91
4 points
What is the late submission points threshold for returns submitted annually ? P91
2 points
What happens to the penalty points if the business hasn ot reached the late submission threshold ? P92
- Points expire automatically - two years
- 1st day of month - after month of late submission
When will the points expire for the late submission of a return for VAT quarter ending 31st March 2023 ? P92
- 7th May 2023 - date of submission
- So - from 1st June 2023
- Answer - 1st June 2025
If a business has reached the late submission penalty threshold , when is the only time the points can be reset to zero ? P92
- Complete a period of compilance
- Submission of all outstanding returns (previous 24 months) - overdue or not
What does a period of compilance refer to ? P92
- Submission all returns on time
- 1st day - month following day after missed deadline
When would a period of compilance begin from , if there is a missed submission date of 7th August ? P92
1st September
If on an annual scheme, when would the period of compilance start for a missed submission date of 30 June ? P92
- 1st August
What is the length of the period of compilance for a business that submits VAT returns quarterly ? P92
- 12 Months
- need 4 on time submissions
What is the length of the period of compilance for a business that submits VAT returns annually? p92
- 24 months
- need 2 on time submissions
What is meant by submission of all outstanding returns ( condition B) of removal ofv penalty points ? P93
- Previous 24 months
- Includes period of compilance
What is the deadline of payment for VAT for businessses that do not pay DD to the HMRC ? P94
- One month and 7 days - end of VAT quarter
What can the late penalties on payments be applied to ? P94
- VAT return
- amendment to return / correction
- VAT assessment - non submission / another reason
When do late payment penalties not apply ? P94
- VAT payments on account
- installments - VAT annual scheme
When will a business get it’s first late payment fee ? P94
- 16 / more days overdue
- none - first 15 days
- penalty = 2% = outstanding balance on day 15
What if a business’ first late payment goes 31 or more days overdue ? P94
- 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
How would the interests on late payments be calculated if the balance is more than 31 days ? P94
Overdue balance * 4% * days spent overdue / 365
What does the HMRC charge in addition to late payment penalties ? P96
- Late payment interests
What payments would incur further interests charges ? P96
- Amounts overdue on:
- VAT return
- amendments/ corrections of VAT returns
- VAT assessment
- Missed VAT payment - annual accounting
What penalties will incurr further interests chargee ? P96
- all penalties
- inc
- late payment penalties - late payment on VAT
- late submission penalties - non submission on time
*
How long are interests charges for late payments ( not first late penalty) applied for , and how is this calculated ? P96
- First day = payment overdue
- until full payment
- Bank of England base rate + 2.5 %
In what circumstances can the business claim interests, following the mistake of HMRC ? P97
- Pays too much VAT
- reclaims too little VAT
- payment from HMRC delayed
How is interests incurred on payments due back from HMRC calculated ? P97
- Bank of england:
- base rate minus 1 %
- minimum rate 0.5%
When does the HMRC repayment interests apply ? P97
- whole period : VAT was overpaid / reclaimed - HMRC is authorised
When will the HMRC not pay any interests on amount? P97
Business mistake
What will a business be issued with in addition to penalties and interests for late payment ? P97
VAT notcie of assessment of tax - HMRC thinks owe
What if a business has been provided with an assessment and it’s actually too low ? P97
- 30 days to notifty
- or additional 30 % of assessment amount
What if a business submits a paper VAT return , when it should be submitting returns digitally ? P97
£400 penalty
What if a business fails altogether to pay VAT due or penalties imposed? P97
Criminal offence
