Understand And Apply VAT Legislation Requirements

Question 1

What is the standard rate of VAT

Answer 1

20%

Question 2

What is an indirect tax?

Answer 2

It is a tax on expenditure, charged by taxable persons on taxable supplies.

Question 3

What is the tax collected from customers who buy a business’s goods and services?

Answer 3

Output Tax

Question 4

What is the tax that business has paid on the goods and services they bought?

Answer 4

Input tax

Question 5

How is VAT rounded?

Answer 5

Down in favour of the taxpayer.

Question 6

What are 5 examples of Exempt goods and services?

Answer 6

Healthcare
Education
Post office postal services
Insurance
Betting and Gambling

Question 7

What is the reduced rate of VAT?

Answer 7

5%

Question 8

Give 5 examples of zero rated goods.

Answer 8

Children’s clothes and shoes
Newspapers
Most food but not from a restaurant or takeaway
Books
Bus and train fares

Question 9

Give 4 examples of reduced rate VAT goods and services.

Answer 9

Domestic fuel
Car seats
Feminine hygiene products
Some types of building work

Question 10

Give 4 examples of items that fall outside the scope of VAT

Answer 10

Goods and services bought outside the EU
Statutory fees such as the congestion charge
Donations to a charity
Salaries and wages

Question 11

What is the VAT threshold for 2017-2018?

Answer 11

85000

Question 12

What was the vat threshold for 2016-2017

Answer 12

83000

Question 13

What is the historic test

Answer 13

The test that is based on the last 12 months of trading and a check should be made at the end of each month - rolling basis

Question 14

When do you need to notify HMRC that you have exceeded the threshold?

Answer 14

Within 30 days of the end of the month in which the threshold was exceeded

Question 15

When will the business registration take effect after the company has exceeded the threshold and has informed HMRC within the 30 day deadline?

Answer 15

On the 1st day of the following month

Question 16

Which supplies are included in the turnover calculation for the threshold

Answer 16

Only taxable supplies -exempt supplies are ignored

Question 17

What is the Future Prospects Test

.

Answer 17

The test looks forward and required organisations to register for VAT if their taxable turnover in the next 30 days is likely to exceed the threshold.

Question 18

Using the future prospects test when should businesses notify the HMRC?

Answer 18

Within 30 days of becoming aware that they are going to

Question 19

Under the future prospects test when does the registration take place

Answer 19

The day they became aware

Question 20

If a business is taken over as a going concern what should the new owner do with the turnover of both companies?

Answer 20

Add the turnovers together to determine if they must register for VAT

Question 21

What is the penalty for failing to register for VAT?

Answer 21

Financial one depending amount of tax revenue lost and the amount of time the business has not been registered.

Question 22

What VAT is paid if a business should have been registered but wasn’t?

Answer 22

It has to repay all the vat it should have charged during the period it wasn’t registered.

Question 23

Can a business voluntarily register for VAT?

Answer 23

Yes as long as it is making taxable supplies

Question 24

What are 3 advantages of voluntary registration?

Answer 24

1. Eliminates risk if not registering when business exceeds threshold avoiding risk of possible fines.
2. It allows businesses to reclaim input vat which is advantageous when they are predominantly making zero rated supplies
3. It makes a small business appear larger.

Question 25

What are 2 disadvantages of voluntary registration for VaT?

Answer 25

1. Increases your prices by 20% which can make business less attractive for potential customers who do not charge vat.
2. Increases the adminstrative burden and could increase costs if they have to employ a bookkeeper.

Question 26

When must a business deregister for VAT?

Answer 26

When it ceased trading or ceases making taxable supplies.

Question 27

When can a business voluntarily deregister?

Answer 27

If their taxable supplies for the following 12 months fall below the threshold.

Question 28

What is the deregistration threshold for 2016-2017

Answer 28

81000

Question 29

When can partial exemption be used

Answer 29

When a business makes both taxable and non taxable supplies.

Question 30

How much vat can be reclaimed on expenditure which relates to both taxable and exempt supplies?

Answer 30

On a Pro Rata basis. Reclaim VAT on the proportion to sales of taxable turnover. i.e. vat on expenses incurred for both types of supply multiplied by the ratio of taxable supplies to total turnover.

Question 31

When can the De Minimis rule be applied?

Answer 31

In some situations where the proportion of exempt supplies compared to taxable supplies is relatively small.

Question 32

What is the De Minimis rule?

Answer 32

The full amount of input VAT can be recovered even if some relates to exempt supplies if…

1. The total exempt input tax is less than £625 per month
2. The exempt input tax is less than 50% of the total input tax.

Question 33

What is residual tax?

Answer 33

The VAT suffered on expenditure related to both the exempt and taxable supplies.

Question 34

What is the total exempt input tax for the De Minimis rule

Answer 34

Vat on the exempt supplies and the proportion of the residual tax that is worked out to belong to the exempt supplies,

Question 35

When should businesses keep vat records and charge vat to their customers?

Answer 35

From the date they become aware that they have to be registered.

Question 36

Can business charge vat before they are registered?

Answer 36

Yes but until they have a registration number they can’t show vat as a separate item on any invoice they issue.

Question 37

How long have business got to send invoices out to customers showing the vat they charged before their registration date?

Answer 37

30 days

Question 38

What records need to be kept

Answer 38

Invoices issue and received
Credit notes issued and received
Import and exports
Record of expenditure that cannot be reclaimed I,e business entertainment
Records of good taken for private use
Records of all zero rated, reduced or vat exempt items bought or sold
General records, bank statements, cash books, cheque stubs paying In Slips, till rolls

Question 39

What is the HMRC visit called to check the correct vat is being paid

Answer 39

Control visit

Question 40

How many years records do you need to keep?

Answer 40

Six years plus your current year

Question 41

What else will HMRC look into on a control visit?

Answer 41

How the business operates to ensure the business owners have a good understanding of any possible areas of the business that may warrant further investigation,