Topic 7 - Further aspects of VAT and the administration of VAT Flashcards
What are the usual VAT return periods?
Usually quarterly, but businesses may choose monthly if due repayment or annual for small businesses.
What is the purpose of Form VAT100? NOT IN TAX TABLES
To file VAT returns online, with the return and payment due 7 calendar days after the last day of the month following the end of the return period.
From when did Making Tax Digital for Business (MTDfB) apply to all VAT-registered businesses?
From April 2022.
What are the key requirements under MTDfB for VAT? 2
1) Keep records digitally for 6 years. 2) Provide VAT return information via MTDfB compatible software.
How is VAT payable/repayable calculated?
Output VAT minus Input VAT.
What is Output VAT?
The VAT charged on sales.
What is Input VAT?
The VAT paid on purchases that can be reclaimed.
Which of the following statements about VAT periods is correct?
A) VAT returns are always quarterly.
B) VAT returns can be filed monthly or annually for small businesses.
C) VAT100 must be submitted in paper format.
D) VAT payments are due 30 days after the period ends.
B) VAT returns can be filed monthly or annually for small businesses.
What is the deadline for submitting VAT returns and payments? IN TAX TABLES
7 calendar days after the last day of the month following the end of the return period.
Who are required to make VAT payments on account? NOT IN TAX TABLES
Substantial traders with a VAT liability greater than £2.3 million per year.
How are VAT payments on account calculated? NOT IN TAX TABLES
1/24 of the previous year’s total VAT liability is paid at the end of the second and third months in each quarter.
When is the balancing payment due for VAT payments on account? NOT IN TAX TABLES
At the end of the month following the end of the quarter, along with the VAT return.
How must VAT payments on account be made?
They must be paid electronically.
Which of the following statements about VAT payments on account is correct?
A) They are required for all businesses.
B) They apply to traders with VAT liability over £2.3m per year.
C) Payments are made at the end of every month.
D) The balancing payment is made at the start of the next quarter.
B) They apply to traders with VAT liability over £2.3m per year.
What are the main VAT records that must be kept? 7
- Order and delivery notes
- Purchase invoices, copy sales invoices and credit notes
- Purchase and sales day books
- Records of daily takings (eg, till rolls)
- Cash book
- Bank statements and paying-in slips
- Annual accounts (P&L account and Balance Sheet)
How long must VAT records be kept?
6 years.
What details must a VAT invoice contain? 4
1) The tax point date. 2) VAT registration number. 3) A description of the goods or services. 4) The total VAT chargeable.
When is a simplified VAT invoice allowed?
For supplies under £250. e.g. Tesco reciept
What type of VAT invoice can retailers issue for supplies over £250?
A ‘modified’ invoice (and simplified invoices for supplies under £250). Modified will separate VAT and non VAT amounts.
Which of the following is NOT a required VAT record?
A) Sales invoices.
B) Order and delivery notes.
C) Annual accounts.
D) Employee payroll records.
D) Employee payroll records.
Which of the following statements about VAT invoices is correct?
A) All invoices must have the same level of detail.
B) A simplified invoice is only allowed for supplies over £250.
C) The tax point date is required on a VAT invoice.
D) Retailers cannot issue modified invoices.
C) The tax point date is required on a VAT invoice.
What are the 3 schemes in which small business can claim VAT relief?
- 1 Annual Accounting Scheme
- 2 Cash Accounting Scheme
- 3 Flat Rate Scheme
What is the Annual Accounting Scheme for VAT?
A scheme where businesses submit one VAT return per year and make electronic payments on account (monthly or quarterly).
How does the nine monthly interim payments system work under the Annual Accounting Scheme?
Nine payments x 1/10 x estimated VAT liability at the end of months 4-12, with a balancing payment and VAT return due within 2 months after year-end.
What is an alternative to nine monthly interim payments under the Annual Accounting Scheme?
Three quarterly interim payments of 25% each, made at the end of months 4, 7, and 10.
What is the maximum expected taxable supplies (excluding VAT) for eligibility under the Annual Accounting Scheme?
£1.35 million.
Which of the following statements about the Annual Accounting Scheme is correct?
A) Businesses submit a VAT return every quarter.
B) Businesses can make either monthly or quarterly interim payments.
C) Monthly payments are based on 1/12 of VAT liability.
D) The balancing payment is due at the start of the next financial year.
B) Businesses can make either monthly or quarterly interim payments.
What are the benefits of the annual accounting scheme for small businesses? 3
- Done once
- Helps businesses predict cash flow as they know how much is outgoing each month
- Likely to be lower than the actual as company is increasing its value YOY so VAT will increase but they are paying less.
ANNUAL ACCOUNTING SCHEME ALL INFO
• The business submits 1 VAT return per year, and makes electronic payments on account (can choose monthly or quarterly)
• Nine monthly interim payments:
End of mo 4, End of mo 12, 2 months after y/e
*based on net VAT liability in previous 12m, or on estimated liability if trader has been registered < 12m – use whichever number is given in the question
• OR: Three quarterly interim payments
– Alternative to nine monthly interim payments (above)
– Three payments of 25%
– Payments at end of months 4, 7 and 10
• Expected taxable supplies (excl. VAT) in following year ≤ £1.35m
• You will be told in the question whether the trader has opted for monthly or
quarterly payments
What is the Cash Accounting Scheme for VAT?
A scheme where businesses account for VAT on cash paid and received (ignoring tax point rules), with automatic bad debt relief.
What is the maximum expected taxable supplies (excluding VAT) for eligibility under the Cash Accounting Scheme?
£1.35 million.
CASH ACCOUNTING SCHEME ALL INFO
• Expected taxable supplies (excl. VAT) in following year ≤ £1.35m
• Account for VAT on cash paid and received basis (ie, ignore tax point rules)
• Automatic bad debt relief
What is the Flat Rate Scheme for VAT?
A scheme where VAT due = VAT-inclusive turnover x % industry sector, with a 1% reduction in the first year of VAT registration. Turnover includes taxable and exempt supplies, and sales of capital assets.
Who can use the Flat Rate Scheme for VAT?
Businesses with annual taxable supplies (excluding VAT) of £150,000 or less.
When must a business leave the Flat Rate Scheme?
When annual total turnover (including VAT and exempt income) exceeds £230,000.
What is a key restriction under the Flat Rate Scheme?
Businesses do not reclaim input tax.
What is the fixed VAT percentage used by ‘Limited cost traders’ under the Flat Rate Scheme?
16.5%.
FLAT RATE SCHEME ALL INFO
• Taxable persons where:
– Annual taxable supplies (excl. VAT) ≤ £150k
– Leave if annual total turnover (incl. VAT, and exempt income) > £230k
• VAT due = % (industry sector) × VAT incl. turnover
– 1% reduction in first year of VAT registration (this will be included in the %
given in the question if relevant)
– Turnover includes taxable and exempt supplies, and sales of capital assets
• Still charge VAT to customer (issue invoices)
• Do NOT reclaim input tax
• Benefit is simpler administration for small entities
• May reduce VAT liability
• ‘Limited cost traders’ all use a fixed percentage of 16.5%
• The question will always state which percentage to apply
Which of the following is a benefit of the Flat Rate Scheme?
A) It allows businesses to reclaim input VAT.
B) It simplifies administration for small entities.
C) It requires detailed VAT calculations for each transaction.
D) It exempts businesses from charging VAT to customers.
B) It simplifies administration for small entities.
Which of the following statements about the Cash Accounting Scheme is correct?
A) Businesses account for VAT on an accrual basis.
B) It applies only to businesses with turnover above £1.35 million.
C) VAT is accounted for when cash is paid and received.
D) It does not provide bad debt relief.
C) VAT is accounted for when cash is paid and received.
How does the VAT penalty system for late filing work? IN TAX TABLES
Businesses receive a point each time a VAT return is late. Once the penalty threshold is reached, a £200 penalty is charged, with further £200 penalties for subsequent late returns.
What are the penalty thresholds for VAT return submission frequency? IN TAX TABLES
Monthly: 5 points, Quarterly: 4 points, Annually: 2 points.
How long do VAT penalty points last if the penalty threshold has NOT been reached? NOT IN TAX TABLES
Points expire after 2 years from the start of the month after the month in which the late filing occurred.
When do VAT penalty points NOT expire?
If the penalty threshold has been reached, points only reset when the business submits all VAT returns on time for the compliance period and all VAT returns for the past 24 months have been submitted.
What are the compliance periods for resetting VAT penalty points? IN TAX TABLES
Monthly: 6 months, Quarterly: 12 months, Annually: 24 months.
Which of the following is NOT a correct penalty threshold for late VAT return submission? IN TAX TABLES
A) Monthly 5 points.
B) Quarterly 4 points.
C) Annually 3 points.
D) Annually 2 points.
C) Annually 3 points.
Which of the following is true about VAT penalty expiration?
A) Penalty points always expire after 12 months.
B) If the penalty threshold is reached, points expire immediately.
C) Points expire after 2 years if the penalty threshold has not been reached.
D) Businesses can reset points by submitting VAT returns late.
C) Points expire after 2 years if the penalty threshold has not been reached.
VAT return period (example) Monthly – 30 April 2025. When is the due date and when would the penalty expiry date be?
VAT return period Monthly - 30 April 2025
Due date - 7 June 2025
Penalty expiry date - 30 June 2027
VAT return period (example) Quarterly – 31 March 2025. When is the due date and when would the penalty expiry date be?
VAT return period Quarterly – 31 March 2025
Due date - 7 May 2025
Penalty expiry date - 31 May 2027
VAT return period (example) Monthly – 31 January 2026. When is the due date and when would the penalty expiry date be?
VAT return period Annually – 31 January 2026
Due date - 31 March 2026
Penalty expiry date - 30 April 2028
Joshua files his VAT returns quarterly and has now accrued four points for the late filing of his VAT returns.
When will his penalty points be reset to zero?
As Joshua has reached the penalty threshold (four points and he files quarterly) he will receive a first £200 penalty and his points do not expire after 24 months. Instead, to be reset he must satisfy both parts of the compliance condition.
His penalty points will be reset to zero when he has submitted VAT returns for a continuous period of 12 months on time. For example, if he accrues four points by
31 December 2025 and then also submits his return for the quarter ended 31 March 2026 late, the earliest 12 month period in which he could submit all his returns on time would end on 31 March 2027.
Assuming he both:
• Filed all four returns up to the quarter ended 31 March 2027 on time, and
• Had submitted all the returns due in the 24 months ended 31 March 2027 (even if they were submitted late)
then the points would be reset to zero on the date on which the 31 March 2027 return is submitted (ie by 7 May 2027).
Joshua will receive his second penalty of £200 for the late filing of his return for the quarter ended 31 March 2026 but will not receive a penalty point. (His first £200 penalty would have been charged when he had reached the four point threshold ie, in respect of his 31 December 2025 return.)
What payments are covered by VAT late payment penalties?
Amounts due on a VAT return, payments on account, and payments due under the annual accounting scheme.
What payments are NOT covered by VAT late payment penalties?
Amounts agreed under a Time to Pay arrangement (TTP).
When is the first penalty for late VAT payment incurred? IN TAX TABLES
If payment is 16 days or more overdue.
When is the second penalty for late VAT payment incurred? IN TAX TABLES
If payment is 31 or more days overdue, an additional penalty applies.
What is the penalty for VAT payments between 16 and 30 days overdue? IN TAX TABLES
A first penalty of 2% on the VAT owed at day 15.
What are the penalties for VAT payments 31 or more days overdue? IN TAX TABLES
First penalty: 2% of what was outstanding at day 15 plus 2% of what is still outstanding at day 30.
Second penalty: A daily rate of 4% per year on the outstanding balance, charged every day from day 31 until the balance is paid in full.
Which of the following penalties applies to VAT payments that are 15 days overdue?
A) 2% of VAT owed.
B) 4% daily charge.
C) £200 flat penalty.
D) None.
D) None.
Which of the following penalties applies to VAT payments that are 31 days overdue?
A) A single flat-rate penalty.
B) 2% of VAT owed at day 15 plus 2% of outstanding VAT at day 30 and a 4% daily charge.
C) 10% of total VAT liability.
D) No penalty if the business is in a Time to Pay arrangement.
B) 2% of VAT owed at day 15 plus 2% of outstanding VAT at day 30 and a 4% daily charge.
How are VAT errors covered?
They are covered by the common penalty regime.
When can VAT errors be corrected on the next return? IN TAX TABLES
If the error was not deliberate and is less than or equal to the greater of £10,000 or 1% of net taxable turnover (VAT exclusive) up to a maximum of £50,000.
When is interest chargeable on unpaid VAT? 2
1) When HMRC raises an assessment for unpaid VAT.
2) When voluntary disclosure of an error exceeds the error reporting threshold.
From when does interest on unpaid VAT run?
From the due date to the actual payment date.
When is interest chargeable on overpaid VAT?
Only if there is an HMRC error leading to VAT repayable.
From when does interest on overpaid VAT run?
From the later of the actual payment date and the due date for payment up to the date of repayment.
Which of the following VAT errors can be corrected on the next return?
A) A deliberate error.
B) An error of £60,000.
C) An error of £9,500.
D) An error of £45,000 where taxable turnover is £3 million.
C) An error of £9,500.
Which of the following statements about VAT interest is correct?
A) Interest on unpaid VAT runs from the date of HMRC assessment.
B) Overpaid VAT earns interest only if caused by an HMRC error.
C) Unpaid VAT interest stops accruing after 6 months.
D) Interest on overpaid VAT runs from the due date only.
B) Overpaid VAT earns interest only if caused by an HMRC error.
