Value Added Tax

Question 1

Value Added Tax

Complete this sentence:

VAT is an _______ tax that is charged on _____ and ______ supplied in the UK by businesses that are ______ registered

Answer 1

VAT is an indirect tax that is charged on goods and services supplied in the UK by businesses that are VAT registered

Question 2

Value Added Tax

When we refer to tax as being indirect this means what?

Answer 2

When tax is known as indirect this means the tax is on spending rather than a tax on income

Question 3

Value Added Tax

What is the definition of tax on income

Answer 3

Tax on income is called direct taxes and includes pay as you earn (PAYE)

Question 4

Value Added Tax

What is the standard rate of VAT charged in a percentage?

Answer 4

20%

Question 5

Value Added Tax

What is the definition of output VAT?

Answer 5

Output VAT is the VAT that the businesses add to the value of their sales (outputs) when they charge customers. This amount cannot be kept by the business and is owed to HMRC.

Question 6

Value Added Tax

What is the definition of input VAT?

Answer 6

Input VAT is the VAT that businesses suffer on their purchases which they can reclaim from HMRC. This reclaim is normally made by deducting the input VAT from the output VAT before is paid over.

Question 7

Value Added Tax

What is the definition of the net value?

Answer 7

The net value is the transaction value before adding any VAT for sale that that this is the amount that the business will keep.

Question 8

Value Added Tax

What is the definition of the VAT amount?

Answer 8

The VAT amount is the total amount of VAT being added to the net value for sales this is the amount owed to HMRC

Question 9

Value Added Tax

What is the definition of the gross value?

Answer 9

The gross value is the transaction value including VAT (the net value plus the VAT) for sales this is the amount that the customer will be charged.

Question 10

With output VAT the business sells some goods for £100 excluding VAT

What is the NET?

What is the VAT?

What is the Gross?

Answer 10

Net = Sales Value £100 (this is the sales revenue retained by the business)

VAT @ 20%(100 x 0.2) = £20 (this is the VAT owed to HMRC)

Gross = sales value (100 x 1.2) £120 (this is the total amount that the customer has to pay)

Question 11

For input VAT a business buys some goods for £50 excluding VAT

What is the net?

What is the VAT?

What is the gross?

Answer 11

Net = purchase value £50 this is the expense suffered by the business

VAT = @ 20% (£50 x 0.2) £10 this is the VAT that can be claimed back from HMRC

Gross equals purchase value (£50 x 1.2) £60 this is the total amount paid to the supplier

Question 12

Complete the following sentence using the words below:

Output, input, excludes, includes

A net value _________ VAT

A gross value ________ VAT

VAT on sales is called __________ VAT

VAT on purchases is called __________ VAT

Answer 12

A net value excludes VAT

A gross value includes VAT

VAT on sales is called output VAT

VAT on purchases is called input VAT

Question 13

Complete the following equations:

1) Net £100.00
2) Net £120.00
3) Net £58.00
4) Net £58.00
5) Net £42.50

Write the VAT (at 20%) and Gross figures for the above

Answer 13

1) VAT = £20 Gross = £120
2) VAT = £24 Gross = £144
3) VAT = £11.60 Gross = £69.60
4) VAT = £8.50 Gross = £51

Net x 0.2 = VAT

Net + VAT = Gross

Question 14

Complete the following equations to figure out the net and VAT (at 20%)

1) Gross = £96
2) Gross = £240
3) Gross = £60
4) Gross = £1197.60

Answer 14

1) Net = £80 VAT = £16
2) Net = £200 VAT = £40
3) Net = £50 VAT = £10
4) Net = £998 VAT = £199.60

Gross ➗ 1.2 = Net

Net x 0.2 = VAT

Question 15

If the output VAT collected on sales is £25 and the input VAT suffered on purchases is £15

What is the amount payable to HMRC?

Answer 15

£25 - £15 = £10

Question 16

What are the different rates of VAT?

1) most goods and services
2) domestic fuel, child car seats
3) non luxury food, books, children’s clothes
4) postal service, insurance

Answer 16

1) 20% Standard Rate
2) 5% Reduced Rate
3) 0% Zero Rate
4) Exempt (non-taxable I.e no VAT added)

Question 17

Complete the following equations

In the quarter just ended Ellie’s ltd sales amount is £32,985.00 (including VAT)

1) What is the Net amount of their sales excluding VAT?

In the same quarter Ellie’s ltd purchases amounted to £12,000.00 (excluding VAT)

2) what was the VAT on their purchase?
3) how much VAT must Ellie’s ltd pay to HMRC in respect of the quarter jsut ended?

Answer 17

1) 32985.00 ➗ 1.2 = £27487.50 net

VAT = £5497.50

2) 12000.00 x 0.2 = £2400.00 VAT
3) 5497.50 - 2400.00 = £3097.50 VAT to pay HMRC

Sold so to pay HMRC - Bought so VAT owed from HMRC

Question 18

What are the formulas for the following Calculations using 20%,15%,5%VAT

Answers will be shown in the above vat order

Calculating VAT

1) From Gross:
2) From Net:

Calculating Net:

3) From Gross:
4) From VAT:

Calculating Gross:

5) From net:
6) From VAT:

Answer 18

Calculating VAT:

1) From Gross:
20% = gross ➗ 6
15% =
5% =

2) From Net:
20% = net X 0.2
15% = net X 0.15
5% = net X 0.05

Calculating Net:

3) From Gross:
20% = gross ➗ 6 and the X by 5
15% =
5% =

4) From VAT:
20% = VAT X 5.
15% =
5% =

Calculating Gross:

5) From net:
20% = net X 1.2
15% = 1.15
5% = 1.05

6) From VAT:
20% VAT X 6
15% =
5% =