Value Added Tax (VAT)

Question 0

What are the 3 de minimis tests that must be satisfied?(3)

Answer 0

Test 1 - total input tax not exceed average 625 per month
Test 2 - total input tax less directly attributed not exceed 625 avg.
Test 3 - exempt input tax not exceed 625 per month

Question 1

When must the VAT annual adjustment be made?(2)

Answer 1

The last return for the year
Or
The first return for the new financial year

Question 2

How does the annual accounting scheme operate, the conditions necessary, and advantages of such a scheme?(9)

Answer 2

Operation:
One VAT return for the year
Return due 2 mths after the end of annual VAT period
9 pmts due y direct debit mths 4-12
10% of VAT paid previous year
Conditions:
Taxable turnover< 1.35M, pmts/returns up to date, leave if > 1.6M
Advantages:
Reduces admin, helps cashflow

Question 3

Which companies would be able to register as a single group for the purposes of value added tax (VAT)?

Answer 3

Two or more companies may register as a group provided they are established in the UK

have a fixed establishment in the UK and they are controlled by the same person.

The person can be an individual, a company, or a partnership

Question 4

What are the potential advantages and disadvantages of registering as a single VAT group?

Answer 4

No need to charge VAT on the transactions between the group companies.

Reduce administration and improve the group’s cash flow.

The group appoints a representative member which would account for the group’s VAT liability which may not be straight forward depending on the accounting systems and procedures used by the various companies within the two separate groups.

zero rated supplies and will therefore be in a repayment position, such that it can improve its cash flow by accounting for VAT on a monthly basis

All of the companies within the group registration would have joint and several liability for the VAT due from the representative member.

Owners and/or the minority shareholders, should give careful consideration to the possible dangers of linking two groups in such a manner.

Question 5

Explain the value added tax (VAT) implications for purchases from a country outside the EU.

Answer 5

VAT must be paid at the time of importation

This VAT can then be reclaimed as input VAT on the VAT return for the period during which the goods are imported.

Question 6

Explain the value added tax (VAT) implications of the sale of a sole trader business to a company.

Answer 6

Notification to HM Revenue and Customs within 30 days

Registration cancelled unless taken over

VAT on business assets unless transferred as going concern

Conditions necessary -> going concern-> use of assets in the business-> co. Must be VAT registered-> no significant breaks before / after sale

Commercial building exception-> VAT on building <3 yrs