Topic 6 - VAT Flashcards
What is VAT collected on?
VAT is collected at each value-added stage of the distribution chain.
Who ultimately bears the cost of VAT?
The final consumer who cannot reclaim it.
On what type of supply is VAT charged in the UK?
Taxable supply of goods and services.
Who is a taxable person in terms of VAT?
A person making taxable supplies who is registered or required to register for VAT.
What types of supplies are outside the scope of VAT?
Exempt supplies or those outside the VAT scope.
What is included in the supply of goods for VAT purposes? 5
- Sales of goods for consideration,
- gifts of business assets,
- goods permanently taken from business for private use,
- sales of goods on HP,
- excluding trade samples and (gifts ≤ £50)
What is included in the supply of services for VAT purposes? 5
- Sales of services for consideration,
- hiring of goods to customer,
- goods owned by business taken temporarily for private use,
- private use of business services supplied to business,
- private use of fuel for motoring.
If a business gifts a good who pays VAT?
The business pays VAT on the good
Which of the following statements about VAT is correct?
A) VAT is only charged on final sales.
B) VAT is collected at each value-added stage.
C) VAT is only charged on physical goods.
D) VAT is suffered by businesses, not consumers.
B) VAT is collected at each value-added stage.
Which of the following is NOT considered a taxable supply?
A) Sale of goods for consideration
B) Gifts of business assets
C) Goods permanently taken for private use
D) Personal gifts given to friends
D) Personal gifts given to friends
A taxable person in VAT terms is:
A) Any individual who buys goods and services
B) A business making taxable supplies and registered for VAT
C) Any company, regardless of registration status
D) Only businesses selling physical goods
B) A business making taxable supplies and registered for VAT
What are the three categories a supply of goods or services may fall into?
Outside the scope of VAT, Exempt supplies, Taxable supplies.
Exempt suppliers - what is the relationship with VAT
e.g. Funeral home
Only make except suppliers not a table supply.
Can not register for VAT system and can not recover input VAT on their businesses therefore cost to business. Don’t charge customers VAT. Only INPUT VAT so payable to HMRC. NO OUTPUT VAT so cannot reclaim from HMRC.
What is the impact of supplies that are outside the scope of VAT?
No effect for VAT; examples include the payment of wages and dividends.
What are the three types of taxable supplies?
Standard-rated (20%), Zero-rated (0%), and Reduced-rated (5%).
What is required for businesses making taxable supplies?
They must charge OUTPUT tax, register with HMRC, and can recover INPUT VAT.
What are some examples of exempt supplies?
Supply of land, insurance, postal services.
What is the VAT treatment of exempt supplies?
No OUTPUT tax is charged, businesses cannot register for VAT, and they cannot recover INPUT VAT.
Which of the following is an example of a supply outside the scope of VAT?
A) Sale of land
B) Payment of wages
C) Postal services
D) Sale of goods
B) Payment of wages
Which of the following is NOT a taxable supply?
A) Zero-rated supply
B) Reduced-rated supply
C) Exempt supply
D) Standard-rated supply
C) Exempt supply
What happens when a business makes exempt supplies?
A) They must charge output VAT
B) They cannot register for VAT
C) They can recover input VAT
D) They must apply the standard VAT rate
B) They cannot register for VAT
When does a taxable person need to register for VAT?
When their taxable supplies exceed £90,000 based on either the Historic or Future Prospects test.
What are the two tests used to determine VAT registration?
The Historic Test and the Future Prospects Test.
What is the Historic Test for VAT registration?
It checks whether taxable supplies exceeded £90,000 in the previous 12 months, assessed TEST at the END OF EACH MONTH of each month. So at the end of the month (e.g. 30/6/25) we need to check if the cummulative taxable amount is greater than £90,000 if it is then we most NOTIFY HMRC in 30 days (e.g. 30/7/25) and then START collecting VAT the month after notification (1/8/25)
What is the Future Prospects Test for VAT registration?
It checks whether taxable supplies will exceed £90,000 in the next 30 days. You can TEST this anytime (e.g. 01/10/25) we are looking to see If in the next 30 days £90,000 then we need to register for VAT- nothing in the past is relevant. Must NOTIFY within 30 days (e.g. 30/10/25) and START collecting VAT on the day of the test (e.g. 01/10/25)
When must a business notify HMRC under the Historic Test?
Within 30 days after the end of the month when the threshold was exceeded.
When does VAT registration start under the Historic Test?
The business is registered from the start of the month following notification.
When must a business notify HMRC under the Future Prospects Test?
Within 30 days of knowing that taxable supplies will exceed £90,000.
When does VAT registration start under the Future Prospects Test?
On the day the test is met.
Which test should we do to determine if someone should be registered for VAT - historic or future prospects?
Do whichever gets you registered the earliest
Which of the following statements about VAT registration is correct?
A) Only businesses selling physical goods must register for VAT
B) A business must register if taxable supplies exceed £90,000 in the past 12 months
C) VAT registration is voluntary for all businesses
D) Businesses only register for VAT if they exceed £90,000 in the next 30 days
B) A business must register if taxable supplies exceed £90,000 in the past 12 months.
What happens when a business exceeds the VAT threshold under the Historic Test?
A) They must notify HMRC within 7 days
B) They must notify HMRC within 30 days and register from the next month
C) They only need to notify HMRC if they exceed £100,000
D) They do not need to notify HMRC unless asked
B) They must notify HMRC within 30 days and register from the next month.
Under the Future Prospects Test, when does VAT registration take effect?
A) The day after notification
B) The day the test is met
C) At the start of the next tax year
D) After a 3-month waiting period
B) The day the test is met.
What is a key advantage of voluntary VAT registration? 3
- A business can reclaim input tax. - e.g. 0 rated suppliers who only want to obtain input VAT
- Look more established to have a VAT no on invoices
- Improves admin
What is the condition for voluntary VAT registration?
The business must be making taxable supplies.
When can a business be exempt from VAT registration?
- If its supplies are normally due for repayment, such as zero-rated supplies.
- Some zero rated suppliers may not register for VAT as if you only have a small amount to claim may not be worth the admin to file for this
What are the two types of VAT deregistration?
Compulsory and Voluntary deregistration.
When must a business compulsorily deregister from VAT?
If it ceases to make taxable supplies, it must notify HMRC within 30 days.
When can a business voluntarily deregister from VAT?
If its taxable turnover is estimated to be below £88,000 in the next 12 months.
What happens to stock and capital items when deregistering from VAT?
The business must charge itself output tax unless the total VAT is £1,000 or less.
Which of the following is an advantage of voluntary VAT registration?
A) The business avoids charging VAT
B) The business can reclaim input tax
C) The business can avoid submitting VAT returns
D) The business does not need to register with HMRC
B) The business can reclaim input tax
Under what circumstances is VAT registration exemption available?
A) If a business only makes standard-rated supplies
B) If a business makes zero-rated supplies normally due for repayment
C) If a business is below the £90,000 threshold
D) If a business is newly established
B) If a business makes zero-rated supplies normally due for repayment
What is the threshold for voluntary VAT deregistration?
A) £80,000
B) £85,000
C) £88,000
D) £90,000
C) £88,000
What happens when a business deregisters from VAT?
A) It must immediately stop trading
B) It must notify HMRC within 7 days
C) It must charge itself output tax on stock and capital items unless VAT is ≤ £1,000
D) It does not need to inform HMRC
C) It must charge itself output tax on stock and capital items unless VAT is ≤ £1,000
Deborah’s taxable sales have dropped to £30,000 pa and forecast annual sales are expected to be between £30,000 and £40,000.
Select which of the following options correctly identifies the VAT implications for Deborah.
a) Deborah must deregister and will suffer a deregistration charge on the deemed supply of stock and capital items still held at deregistration on which input VAT had been recovered.
b) Deborah must deregister and will suffer a deregistration charge on the deemed supply of stock and capital items still held at deregistration on which input VAT had been recovered where the output VAT exceeds £1,000.
c) Deborah may choose to deregister but would then suffer a deregistration charge on the deemed supply of stock and capital items still held at deregistration on which input VAT had been recovered where the output VAT exceeds £1,000.
d) Deborah may choose to deregister but would then suffer a deregistration charge on the deemed supply of stock and capital items still held at deregistration on which input VAT had been recovered.
c) Deborah may choose to deregister but would then suffer a deregistration charge on the deemed supply of stock and capital items still held at deregistration on which input VAT had been recovered where the output VAT exceeds £1,000.
How is VAT calculated on a VAT-exclusive value of supply at the standard rate?
VAT exclusive value × 20% (if reduced rate × 5%).
How is VAT calculated if a VAT-inclusive figure is given?
VAT inclusive value × 1/6 (if reduced rate × 5/105).
1/6 = 20/120
What happens if VAT has not been charged when it should have been?
The sales price is treated as a VAT-inclusive amount.
What is the tax point?
The tax point determines which VAT return period a supply or purchase should be recorded in.
What are the three key events that determine the actual tax point? NOT IN TAX TABLES
- Goods made available/services complete (Basic tax point), 2. Payment received, 3. Invoice issued.
When can the invoice date be used as the tax point instead of the basic tax point? NOT IN TAX TABLES
If the invoice is issued within 14 days of the basic tax point.
How is the tax point affected if a deposit is paid?
Separate tax points exist for the deposit and the balance.
How is VAT calculated if the VAT-inclusive price is given at the standard rate?
A) VAT inclusive value × 1/5
B) VAT inclusive value × 1/6
C) VAT inclusive value × 5/105
D) VAT inclusive value × 20%
B) VAT inclusive value × 1/6
Which of the following determines the actual tax point?
A) The date of delivery only
B) The later of invoice date or payment date
C) The earlier of goods made available, payment received, or invoice issued
D) The date of the next VAT return
C) The earlier of goods made available, payment received, or invoice issued
If the basic tax point is the earliest date, when can the invoice date be used instead?
A) If the invoice is issued within 14 days
B) If the invoice is issued after 30 days
C) If the invoice is issued before the goods are delivered
D) Only if the payment is received first
A) If the invoice is issued within 14 days
What happens if a deposit is paid for a taxable supply?
A) There is no tax point until the full balance is paid
B) The tax point is at the end of the VAT period
C) Separate tax points exist for the deposit and the balance
D) The tax point is when the invoice is issued
C) Separate tax points exist for the deposit and the balance
What is the tax point for this supply of goods? Goods removed 10 May, invoice issued 26 May, payment received 1 June
10 May (basic tax point)
What is the tax point for this supply of goods? Goods removed 28 May, invoice issued 26 May, payment received 1 June
26 May (actual tax point, invoice before basic tax point)
What is the tax point for this supply of goods? Goods removed 16 May, invoice issued 26 May, payment received 1 June
26 May (actual tax point, invoice within 14 days after basic tax point)
What is the tax point for this supply of goods? Goods removed 20 May, invoice issued 26 May, payment received 18 May
18 May (actual tax point, payment before basic tax point)
What is the tax point for this supply of goods? Goods removed 8 May, invoice issued 26 May, deposit received 1 May, balance received 1 June
Deposit: 1 May (actual tax point, payment before basic tax point)
Balance: 8 May (basic tax point)
How is the value of supply usually determined?
The value of supply is usually the amount charged by the supplier, exclusive of VAT.
How is the value of supply determined for a gift of business assets?
The value of supply is the VAT-exclusive replacement cost.
What are the two types of discounts a trader may offer?
Trade discount and settlement discount.
How should VAT be calculated in relation to discounts?
VAT should always be calculated on the actual amount paid, deducting trade discounts but only deducting settlement discounts if they are taken up.
What are the two options for suppliers regarding VAT treatment of settlement discounts?
- Charge VAT on the full amount and issue a credit note if the settlement discount is taken up. 2. Show two different amounts due on the invoice, one with and one without the settlement discount, leading to two different VAT amounts.
Which of the following is correct regarding the value of supply?
A) The value of supply always includes VAT
B) The value of supply is the VAT-exclusive amount charged by the supplier
C) The value of supply includes all discounts whether taken or not
D) The value of supply for business gifts is the VAT-inclusive replacement cost
B) The value of supply is the VAT-exclusive amount charged by the supplier
Which discount is always deducted before calculating VAT?
A) Settlement discount
B) Trade discount
C) Both trade and settlement discounts
D) Neither discount
B) Trade discount
How should VAT be treated if a settlement discount is offered?
A) VAT should always be charged on the full amount, regardless of discounts
B) VAT should be calculated only after the discount is applied
C) VAT should be calculated either on the full amount with a credit note later or showing two different amounts on the invoice
D) VAT should be ignored if a discount is given
C) VAT should be calculated either on the full amount with a credit note later or showing two different amounts on the invoice
When is output tax accounted for in relation to bad debts?
Output tax is accounted for according to the tax point, which may be before cash is received from the customer.
What are the conditions for claiming bad debt relief?
- The debt must be more than 6 months overdue from the payment due date. 2. The debt must be written off in the books.
What does bad debt relief allow a trader to do?
It allows the trader to reclaim the output VAT paid on the bad debt as input VAT.
Within what timeframe must a bad debt relief claim be made? NOT IN TAX TABLES
Within 4 years of becoming eligible for relief.
When can a business claim bad debt relief?
A) Immediately after the invoice is issued
B) When the debt is over 6 months overdue and written off in the books
C) Only if the customer declares bankruptcy
D) Any time within 10 years of issuing the invoice
B) When the debt is over 6 months overdue and written off in the books
What does bad debt relief enable a business to do?
A) Cancel the unpaid invoice
B) Avoid paying corporation tax on the bad debt
C) Reclaim the output VAT paid on the bad debt as input VAT
D) Extend the payment deadline for the customer
C) Reclaim the output VAT paid on the bad debt as input VAT
What is the deadline for claiming bad debt relief?
A) 2 years from the date of the invoice
B) 4 years from becoming eligible for relief
C) 6 months from when the debt is overdue
D) 10 years from the invoice date
B) 4 years from becoming eligible for relief
Who can reclaim input VAT?
A taxable person making taxable supplies.
How much input VAT can be reclaimed for mixed-use purchases?
Only the business percentage of input VAT can be reclaimed.
List some items for which input VAT is not recoverable 4
- Motor cars unless used exclusively for business purposes, 2. Business entertaining (except for staff or foreign customers), 3. Non-business items, 4. Items without a VAT receipt.
When can input VAT suffered before registration be recovered? 2
On the first VAT return, for goods supplied within 4 years and still in use, or services supplied within 6 months of registration.
What is the fuel scale charge used for?
To account for VAT on fuel used for private miles by employees or owners. Reclaim all input VAT
How is VAT on the fuel scale charge calculated?
Quarterly scale charge (given in exam) × 1/6.
Which of the following statements about input VAT recovery is correct?
A) Any VAT-registered business can reclaim all input VAT
B) Only the business percentage of input VAT can be reclaimed on mixed-use purchases
C) Businesses can reclaim VAT on any car purchase
D) VAT receipts are not required for reclaiming input VAT
B) Only the business percentage of input VAT can be reclaimed on mixed-use purchases
Which of the following is NOT an example of irrecoverable input VAT?
A) VAT on a motor car used solely for business
B) VAT on business entertaining for UK clients
C) VAT on personal purchases
D) VAT on items without a VAT receipt
A) VAT on a motor car used solely for business
What is the time limit for reclaiming VAT on pre-registration goods?
A) 6 months
B) 1 year
C) 4 years
D) 10 years
C) 4 years
How is VAT on private fuel use accounted for?
A) VAT is not charged on private fuel
B) VAT is calculated using the fuel scale charge multiplied by 1/6
C) VAT is calculated as 20% of the total fuel cost
D) VAT must be refunded to the employee
B) VAT is calculated using the fuel scale charge multiplied by 1/6
