Understand And Apply VAT Legislation Requirements Flashcards
What is the standard rate of VAT
20%
What is an indirect tax?
It is a tax on expenditure, charged by taxable persons on taxable supplies.
What is the tax collected from customers who buy a business’s goods and services?
Output Tax
What is the tax that business has paid on the goods and services they bought?
Input tax
How is VAT rounded?
Down in favour of the taxpayer.
What are 5 examples of Exempt goods and services?
Healthcare Education Post office postal services Insurance Betting and Gambling
What is the reduced rate of VAT?
5%
Give 5 examples of zero rated goods.
Children’s clothes and shoes Newspapers Most food but not from a restaurant or takeaway Books Bus and train fares
Give 4 examples of reduced rate VAT goods and services.
Domestic fuel
Car seats
Feminine hygiene products
Some types of building work
Give 4 examples of items that fall outside the scope of VAT
Goods and services bought outside the EU
Statutory fees such as the congestion charge
Donations to a charity
Salaries and wages
What is the VAT threshold for 2017-2018?
85000
What was the vat threshold for 2016-2017
83000
What is the historic test
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
When do you need to notify HMRC that you have exceeded the threshold?
Within 30 days of the end of the month in which the threshold was exceeded
When will the business registration take effect after the company has exceeded the threshold and has informed HMRC within the 30 day deadline?
On the 1st day of the following month
Which supplies are included in the turnover calculation for the threshold
Only taxable supplies -exempt supplies are ignored
What is the Future Prospects Test
.
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.
Using the future prospects test when should businesses notify the HMRC?
Within 30 days of becoming aware that they are going to
Under the future prospects test when does the registration take place
The day they became aware
If a business is taken over as a going concern what should the new owner do with the turnover of both companies?
Add the turnovers together to determine if they must register for VAT
What is the penalty for failing to register for VAT?
Financial one depending amount of tax revenue lost and the amount of time the business has not been registered.
What VAT is paid if a business should have been registered but wasn’t?
It has to repay all the vat it should have charged during the period it wasn’t registered.
Can a business voluntarily register for VAT?
Yes as long as it is making taxable supplies
What are 3 advantages of voluntary registration?
- Eliminates risk if not registering when business exceeds threshold avoiding risk of possible fines.
- It allows businesses to reclaim input vat which is advantageous when they are predominantly making zero rated supplies
- It makes a small business appear larger.
What are 2 disadvantages of voluntary registration for VaT?
- Increases your prices by 20% which can make business less attractive for potential customers who do not charge vat.
- Increases the adminstrative burden and could increase costs if they have to employ a bookkeeper.
When must a business deregister for VAT?
When it ceased trading or ceases making taxable supplies.
When can a business voluntarily deregister?
If their taxable supplies for the following 12 months fall below the threshold.
What is the deregistration threshold for 2016-2017
81000
When can partial exemption be used
When a business makes both taxable and non taxable supplies.
How much vat can be reclaimed on expenditure which relates to both taxable and exempt supplies?
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.
When can the De Minimis rule be applied?
In some situations where the proportion of exempt supplies compared to taxable supplies is relatively small.
What is the De Minimis rule?
The full amount of input VAT can be recovered even if some relates to exempt supplies if…
- The total exempt input tax is less than £625 per month
- The exempt input tax is less than 50% of the total input tax.
What is residual tax?
The VAT suffered on expenditure related to both the exempt and taxable supplies.
What is the total exempt input tax for the De Minimis rule
Vat on the exempt supplies and the proportion of the residual tax that is worked out to belong to the exempt supplies,
When should businesses keep vat records and charge vat to their customers?
From the date they become aware that they have to be registered.
Can business charge vat before they are registered?
Yes but until they have a registration number they can’t show vat as a separate item on any invoice they issue.
How long have business got to send invoices out to customers showing the vat they charged before their registration date?
30 days
What records need to be kept
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
What is the HMRC visit called to check the correct vat is being paid
Control visit
How many years records do you need to keep?
Six years plus your current year
What else will HMRC look into on a control visit?
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,
