VAT Flashcards
When does the Historic test become effective?
From the first day of the second month following the month in which registration is exceeded
When should notification occur for the Historic test?
Within 30 days of the end of the month in which registration threshold is exceeded
When does notification and effectiveness take place with future tests?
By the end of the 30 day period- notification
Immediately i.e. from the start of the 30 day period- effectivness
What taxable supplies are exempt from VAT?
Dividend salaries, Insurance, Land, Postal services, Financial services and Education
How do you calculate VAT return?
Output Vat- input Vat
What additional responsibilities come with registration?
Charging output tax on taxable supplies
Quoting the taxable person’s VAT registration number on all sales invoices
Filing a VAT return for the allocated tax period
Maintaining appropriate VAT records to be able to support recovery of input tax on business purchases and expenses
What are the advantages of voluntary registration?
Can recover input VAT on purchases
Avoids penalties for late registration
Can disguise the small size of business
What are the disadvantages of voluntary registration?
Burden of compliance with VAT administrative rules
Must charge Output VAT which makes goods/services comparatively more expensive than an unregistered business for customers who cannot recover VAT
Who is voluntary registration beneficial to?
To businesses that have input VAT to recover and makes zero-rates supplies.
And supplies to VAT registered customers who can recover the VAT charged.
Input VAT can be recovered for goods and services pre-reg if…
Goods:
Must be acquired for business purposes and should not be sold or consumed prior to registration.
Acquired less than or equal to 4 years before registration
Services:
Services must be supplies for business purposes
Supplied less than or equal to 6 months before registration
Advantages of group of companies VAT?
No VAT needs to be accounted for on intra-group supplies.
Only one VAT return needs to be submitted-administrative cost savings
Disadvantages of group of companies VAT?
All members remain jointly and severally liable.
Collection and collation of information to go into the single VAT return may be more problematic and time consuming because coming from so many different sources.
Deregistration for VAT can be either…
Compulsory or Voluntary.
Compulsory deregistration should occur when a business ceases to make taxable supplies. HMRC needs to be notified with 30 days and deregestration is effective from date of ceassation.
Voluntary deregistration is when a person provides info that the taxable supplies in the next 12 months will not exceed £83000. Effective from the date of request or agreed at later date. 12 month period starting from any time.
What happens when deregestration occurs?
Output tax must be accounted for on the value of all non-currents assets and inventory held at the date of deregistration on which a deduction for input tax has been claimed.
However final tax liability waived if less than or equal to £1000
What is a transfer of ongoing concern?
This is when the following conditions are met:
The business is transferred as an ongoing concern.
No change in trade or significant break in trade.
Transferee is or becomes VAT registered immediately after the transfer.
It means that it will not be a taxable supply. No output VAT will be charged on the assets transferred. No input VAT is recoverable by the purchaser.
What does transfer of registration mean?
Normally on the transfer of VAT registered business compulsory deregistration would apply.
It is possible by joint election, for the transferee to take over VAT registration of the transferor.
However this means the transferee is taking over all of the past liabilities of the transferor, which may give rise to unacceptable risks from their perspective.
What is the formula for Output VAT?
Standard rate sales
Zero rate sales
Gifts of goods (no output tax if less than £50 in any 12 month period or if trade sample or if gift of service)
Goods taken for own use
Private fuel for employees
VAT should always be calculated on…
the price the customer actually pays
What are the VAT rules on Cars?
All input VAT recoverable on running costs of cars such as fuel and repairs, even when there is some private use. Not available on purchasing.
50% available on leased cars with some priv use.
When business pays for fuel for employee, output VAT available on scale rate or reimbursed amount.
What is input VAT irrecoverable on?
Purchase of cars unless 100% business use.
Leased cars with some priv use (50% only)
Non-business use (if partial private then apportion)
Business entertaining ( allow for staff entertaining and overseas customers)
Purchases for which no VAT receipt is held
Input VAT formula?
Standard rate purchases
Zero rate purchases
Recovery of VAT perviously paid on impaired debts ( at least 6 months must have passed)
Whats the deadline for a VAT return?
1 month and 7 days after the end of the quarter.
Vat refunds are processed within 10 days and trader has period of 4 years from due date of the relevant return for claiming refund.
What does a VAT invoice include?
This must be issued when a standard rated supply is made to VAT registered customer, within 30 days of supply.
VAT registration number
Suppliers name address
Date of issue
VAT rate
Amount of VAT payable
Description of goods
What is the flat rate scheme about?
Traders join if ATT excluding VAT in the next year is expected to be less than or equal to £150,000. A trader can stay in scheme until VAT inclusive turnover >£230,000.
The scheme means NO input vat recovered and records dont need to be kept.
VAT invoices issued as normal.
Flat rate percentage applied to gross VAT inclusive total turnover figure.
Can be used in conjunction with annual accounting scheme but not cash accounting.
What are the advantages of the flat rate scheme?
Less admin burden as no input VAT records required
Possibly less VAT due than under normal circumstances
How does the cash accounting system work?
VAT accounted for when cash receipts and payments actually made rather than invoices being issued and received.
Can join scheme if VAT exclusive taxable turnover expected to be less than or equal to £1,350,000 including zero rated sales but excluding sales of cap assets and can stay until taxable supplies from previous 12 months is >£1,600,000
What are the disadvantages and advantages of cash accounting system?
Ads- Businesses selling on credit dont have to pay output VAT to HMRC until they receive payment from customers.
Gives automatic relief to impaired debts
Dis- Input tax cant be claimed until invoice is paid. Puts delates on recovery of input VAT if business buying on credit.
Not suitable for cash sales or zero-rated businesses that would suffer from delayed input tax recovery
What is the annual accounting system?
One VAT return made yearly but payments made regularly.
9 payments with each one being 10% of last years VAT liability. Balancing payment made when return filed.
Advantages are:
Relives administration burden
Extra month to make balancing payment
Fixed payments help budgeting and cashflow.
Same conditions as cash accounting system
