Topic 24 - VAT

Question 1

Identify when pre-registration VAT can be recovered

Answer 1

Goods acquired for business purposes 4 years pre reg; still held at reg.

Services:
Acquired 6 months pre-reg
Supplied for business purposes

Question 2

When must/ may deregister for VAT?

Answer 2

Must:
if cease to make taxable supplies
Notify within 30 days of ceasing to supply
Deregister on date of cessation

May:
If expected taxable supplies in next 12 months < £83k.

Notify at anytime and de-register from date of request or an agreed earlier date.

Question 3

How does the annual accounting scheme work?

Answer 3

Submit 1 return each year.
POA’s
- 9 fixed POAs in months 4 -12
- each payment 10% of VAT last year
- New business estimate
-Balancing payment due 2 months after end of annual VAT period.

Question 4

What are the conditions of the annual accounting scheme?

Answer 4

Taxable turnover < £1,350,000 ex VAT

VAT payments and returns up to date
Must leave if turnover > £1,600,000

Question 5

How does the cash accounting scheme work?

Answer 5

VAT accounted for on a cash received basis.

Question 6

What are the conditions of the cash accounting scheme?

Answer 6

• Taxable turnover < £1,350,000 ex VAT
• VAT payments and returns up to date
• Must leave if taxable turnover > £1.6m
• Cannot be used for goods that are invoices more than 6 months in advance of payment date/invoice issued prior to services taking place.

Question 7

How does the flat rate scheme work?

Answer 7

• Charge output VAT and invoice customers the normal way
• Calc VAT payable = (fixed trade sector % x total VAT inclusive turnover inc exempt supplies)
• No input VAT recovered
• Flat rate of 16.5% has been introduced for business which have no or limited amount of purchased goods.

Question 8

What are the conditions of the flat rate scheme?

Answer 8

Taxable supplies for next 12 months < £150,000 ex VAT

Committed not VAT offenses in last 12 months

Must leave scheme when annual income > £230,000 (VAT inclusive and taxable and exempt suppliers)

Question 9

What items can you NOT claim VAT back on?

Answer 9

Exempt supplies

Motor cars with personal use
insurance and road fund licences

Outside the scope:
Gifts/simples
Gift of services
wages
dividends
transfer of going concern

Question 10

Give examples of land and buildings - Zero Rated

Answer 10

Freehold sales and leases of > 21 years of residential and charitable buildings.

0% VAT
Claim input VAT on cost incurred re sales

Question 11

Give examples of land and buildings -Standard

Answer 11

Sales of new (< 3 years from construction) freehold commercial buildings

20% VAT
Claim input VAT on cost incurred re sales

Question 12

Give examples of land and buildings - Exempt

Answer 12

All other supplies - But an option to tax

No VAT charges/reclaimed
Unless chose option to tax

Question 13

What is the impact of the option to tax

Answer 13

• Supplies become taxable
• Input VAT can be recovered on the property and expenditure incurred going forward
• Future sales will have VAT added (-ve)

if customer non vat reg….increase costs

Question 14

What is the option to tax?
What does it apply to?
How do we elect for this?

Answer 14

• Applies to exempt suppliers
• Election to treat supplies as standard rated
  
  • Input tax incurred - recovered
  • Future supplies will be standard rated including rent
• Irrevocable for 20 years (6 months cooling off period)
• Election made individually for each property owned
  
  • New owner not bound by previous election unless in VAT group

Question 15

If the option to tax has been made in respect of a building, when can this be included in the TOGC?

Answer 15

If the new only opts to tax, otherwise VAT is chargeable

Question 16

What is a partial exemption?

Answer 16

When the trader makes both taxable and exempt suppliers;

The element of input tax relating to exempt suppliers may not be recoverable.

Question 17

How do you calculate partial exemption (proforma)?

Answer 17

Total Recoverable Irrecoverable

• Input VAT*
• directly att.*
• to Taxable supplies. X. X*
• directly att. to*
• exempt supplies. X X*
• Non att. VAT*
• eg overheads*

Question 18

What is the recoverable percentage?

Answer 18

Total taxable suppliers (standard/zero)

Total supplies (stnd/zero/exmpt)

= y%

Excludes VAT and Capital items

Question 19

When is all VAT recoverable with regard to the partial exemption?

( the annual test)

Answer 19

De minimus Limit - three tests - only need to satsify one

1. Total input tax if < £635 per month ave AND the value of exempt supplies <50% of total supplies
2. Total input tax less input tax directly arrtirubtable to taxable supplies if <£625 per month on ave AND the value of exempt supplies <50% of the value of totals supplies
3. If total irrecoverable input tax is:

< £625 per month on ave

< 50% of total input VAT

Question 20

State the annual test - when can it be applied?

Answer 20

De minimus in PY; and

input VAT for CY is less than/equal to £1m

Question 21

When would the capital goods scheme be triggered?

Answer 21

When partially exempt trader purchases:

• expensive land & buildings; or
• computers and computer expuipment.

Question 22

When and How is the adjustment to CGS calculated?

Answer 22

Adjumstments made to input VAT recovered where % of exempt supplies changes

Assets:

Rules apply if cost Period of Adj

Land and Buildings. > £250,000 10 years

Computers/Comp

equipment > £50,000 5 Years

Annual adjustment:

Input Tax / Adj Period x (CY%-original %)

Question 23

What are the adjustments on the sale for CGS?

Answer 23

• Adj made as normal in year of sale
• Final adj made to cover remaining years of adj period
• Taxable disposal - assumed taxable use for remaining period
• Exempt disposal - assune 0% taxable use for remaining period.

Question 24

How would you identify a default surcharge penalty arises and calculate it?

Answer 24

If a trader sumbits VAT return late or pays VAT due late

Surcharge period runs until 12 months after the end of the period for which the trade is in default.

If defauls in period:

1. Surcharge period extends to 12 months after current VAT default period
2. If the dafault is a late payment, business charged surchased penalty - fixed % of VAT due.

First default : 2% (unless < £400)

Second: 5% (unless < £400)

Thirds: 10% (higher of £30 and actual)

Fourth: 15% (higher of £30 and actual)

Question 25

What are the procedures when errors are on VAT returns?

Answer 25

• Can result in penalty for a incorrect return and penalty interest
• Errors can be corrected in next returns if they do not exceed the greater:
  
  • £10,000 ; or
  • 1% x net VAT turnover for return period (Max £50k)
• Other errors should be notified to HMRC

Results depends of behaviour of tax payer:

Deliberate and concealed:

Max 100%

Min30% unprompted

Min 50% - Prompted

Deliberate, not concealed

Max 70%

Min 20% unprompted

Min 35 % - Prompted

Careless

Max 30%

Min 0% unprompted

Min 15% prompted

Question 26

What are the VAT implications if you export outside of the EU?

to VAT registered companies

to NON VAT registered companies

Answer 26

VAT Registered

Non VAT registered

Question 27

What are the VAT implications if you export inside of the EU

to VAT registered companies

to NON VAT registered companies

Question 28

What are the VAT implications if you import inside of the EU

to VAT registered companies

to NON VAT registered companies

Question 29

What are the VAT implications if you import outside of the EU

to VAT registered companies

to NON VAT registered companies