Types Of Supply Flashcards
What is supply?
This refers to the sale of goods/services, making a supply of goods/services.
What are the 3 categories of supply?
- Outside the Scope of VAT
- Exempt supplies
- Taxable supplies
Describe ‘outside the scope of VAT’
- Any supply that is outside the scope of VAT has no impact for VAT purposes, e.g., wages and dividends.
- This means that these supplies do not get included in info or calculations for VAT returns.
- They are the payments or receipts which are excluded when determining the VAT position of a business.
Describe ‘exempt supplies’
- These are supplies which are not classified as taxable supplies and therefore are not reflected in our returns and VAT calculations.
- It’s important to understand the relevance of exempt supplies:
- If a business only makes exempt supplies, they cannot register for VAT. Even though they may be charged on VAT on their purchases they cannot reclaim these inputs from HMRC. This means they incur the gross costs of goods/services they purchase.
Describe ‘taxable supplies’
- Any supply that is not exempt or outside the scope is subject to VAT rates and referred to as a taxable supply.
- Provided a business makes taxable supplies they may register for VAT purposes, and once their taxable supplies are above a set limit they must register.
- Even a business selling only zero-rated goods/services is providing taxable supplies and can be registered for VAT—they will always be in a repayment position.
Describe places of supply
- Place of supply rules are used to determine where a supply takes place for VAT purposes.
- Application of these rules determines whether UK VAT is chargeable on a supply and the manner in which it is accounted for (i.e., by the supplier or customer).
- The rules are different depending on whether we are dealing with the supply of goods or the supply of services (as determining the location of service is more complex).
Describe the supply of goods with regards to place of supply
- The basic rule is that goods are treated as supplied at the place where they are when their dispatch or transport to the customer begins.
Describe the supply of services with regards to place of supply
For supplies of service, we need to look at whether we are dealing with a business-to-business transaction (B2B) or a business-to-customer transaction (B2C).
- B2B: Place of supply is the location of the customer
- B2C: Place of supply is location of the supplier
What are exports?
When we make sales overseas
Describe the VAT treatment when goods are exported
- Sale is zero-rated
- They are still taxable, but the output tax is calculated at 0%
- There must be evidence of the export for it to be zero-rated.
Describe the VAT treatment when services are exported
UK VAT is applied if place of supply is UK
- B2B: Place of supply is customer location so not UK VAT is charged.
- B2C: Place of supply is supplier location so UK VAT is charged.
What are imports
When we make purchase from overseas
Describe the VAT treatment when goods are imported
- VAT is deemed to apply at the same rate as it would have been if you bought the goods inside the UK to ensure UK businesses are not put at disadvantage.
- Achieved using ‘postponed accounting’ — the VAT is accounted for as both input VAT and output VAT on the same VAT return.
- As long as business is able to recover all of its input VAT, the net effect is nil.
Describe the VAT treatment when services are imported.
- When services are received by a VAT registered business from another country, the supply is deemed to be made in the UK.
- The supplier does not charge VAT on the invoice. Instead, they include the customer’s VAT number on the invoice along with the country code, and a statement that ‘reverse charge applies’.
- It is then the responsibility of the customer to self-assess the VAT, i.e., charge themselves the VAT (output vat) and then claim it back (input vat).
