VAT

Question 1

How is VAT applied to sales?

Answer 1

Added to sale price and paid to HMRC

Question 2

How is VAT applied to purchases?

Answer 2

VAT chargeable can be returned on pruchases

Question 3

What is a taxable supply?

Answer 3

A supply on which output tax is charged and input tax is recoverable

Question 4

What is an exempt supply?

Answer 4

A supply upon which no output tax is charged, and inout tax is not recoverable.

E.g. land, insurance and postal services

Question 5

What are the three bands of VAT?

Answer 5

Standard rate - 20% - any taxable supply which is not 0 or reduced rate.

Reduced rate - e.g. domestic fuel

Zero rated - 0% - basic food, books, childrens clothes

Question 6

What are some examples of taxable supplies that output VAT will be charged?

Answer 6

Sales of goods/services

Gifts of goods unless <£50 or trade samples

Goods permanently taken out of a business for private use by the owner or employee

Motor fuel provided to employee

Question 7

What is the threshold for compulsary registration?

Answer 7

Total value of taxable supplies exceeds £85k, doesn’t include supplies of capital assets of the business.

Question 8

What is the historic test?

Answer 8

At the end of any month, the taxable turnover for the previous 12 months exceeds £85k

Notify HMRC within 30 days of the end of the month in which the threshold was exceeded, e.g. Feb relevant month, notify by March 30th

Registration takes effect from the 1st day after the end of the month following the relevant month.E.g. Feb relevant month, 1st April registration date

Question 9

What is the future prospects test?

Answer 9

The person must register for VAT if, at any time, there are reasonable grounds for believing that the taxable turnover in the next 30 days alone will exceed £85k.

Registration takes effect from the beginning of the 30 day period.

Question 10

What is voluntary registration?

Answer 10

Self explanitory

Must be making taxable supplies

Main advantage is the ability to recover input VAT

Question 11

When is deregistration compulsary?

Answer 11

If a person ceases to make taxable supplies and has no intention of making taxable supplies.

Must notify HMRC within 30 days

Stops charging and claiming VAT

Question 12

When is a person eligible for voluntary deregistration?

Answer 12

If estimated turnover for the next 12 months won’t exceed £83k

Question 13

When is the basic tax point?

Answer 13

The date of which goods are removed or made available to the customer

Question 14

When is the tax point (in order)?

Answer 14

Payment recievedd before goods/services provided

Invoice issued before goods/services provided

Invoice issued within 14 days after goods/services provided

Question 15

What is the value of supply?

Answer 15

The VAT exclusive amount that would be payable by the person making the supply at that time to replace the goods.

Question 16

How are discounted supplies calculated?

Answer 16

Calculate VAT on sales after any discounts taken up by the customer

Question 17

What is the fuel scale charge based on?

Answer 17

Based soley on CO2

Question 18

When is bad debt relief available?

Answer 18

If the invoice is more than 6 months overdue since due date

If the debt has been written off in the supplier’s accounts

VAT reclaimed in the supplier’s VAT return together with the input tax on purchases

Claimed within 4 years of becoming eligible

Question 19

How is pre-registration charged?

Answer 19

Charge after registration to reclaim input VAT

Don’t charge before, can’t reclaim

Question 20

If the historic test is passed, when does registration take effect from?

Answer 20

First day after the end of the month following the relevant month

E.g. Feb relevant month, charge from April 1st

Question 21

What is output vat?

Answer 21

Business making taxable supplies will charge customers VAT at rates of either 0,5,20

Question 22

What is input VAT?

Answer 22

Business making taxable supplies will reclaim Vat paid on purchases used to make said supplies

Question 23

What are the conditions that must be met to claim input VAT?

Answer 23

Must have VAT invoice

Goods/Services purchased for business use only

Providing goods/services to employees is considered business use

Question 24

What can input VAT not be recovered on?

Answer 24

Cars available for private use

Third party entertaining

Question 25

What can input VAT be reclaimed on?

Answer 25

Goods purchased up to 4 years before registration

Services purchased up to 6 months before registration

Question 26

How is VAT payable/repayable calculated?

Answer 26

Output-input

Question 27

What supplies are outside the scope of Vat?

Answer 27

Wages and dividends

Question 28

What is the VAT fraction?

Answer 28

Used to calculate VAT when given inclusive price

Inclusive x 1/6 = VAT

Question 29

How are sole traders assessed if they have multiple businesses?

Answer 29

Assessed on all businesses

Question 30

Are goods taken out the business by an owner liable to VAT?

Answer 30

Yes

Question 31

If someone drops below the VAT threshold what are the implications?

Answer 31

May choose to deregister but would then need to pay output VAT on the deemed supply of stock/capital still held at deregistration if valued above £1k

Question 32

Are gifts of a service to a customer deemed a supply for VAT purposes?

Answer 32

No

Question 33

Are accessories fitted when supplied on cars recoverable?

Answer 33

Not if there is any element of private use

Question 34

Does a business only making 0 rated supplies have to register for VAT?

Answer 34

No they can be exempt

Question 35

If a business ceases to make taxable supplies (exempt only) what happens with regard to dergistration?

Answer 35

Deregistration effective immediately and notify HMRC within 30 days

Question 36

What are the conditions for output VAT to be recovered on an unpaid invoice?

Answer 36

Debt must be more than 6 months old and written off in the accounts

Question 37

What is the basic tax point for good on sale or return?

Answer 37

Basic tax point is the adoption date (max 12 months later)