VAT Flashcards
What is VAT chargeable on?
The sale of taxable supplies by a taxable person
What are the 3 categories of VAT rates?
- Zero Rated (Charged at 0% to consumers, but registered for VAT so can reclaim input VAT)
- Reduced Rated (Charged at 5% to consumers, but registered for VAT so can reclaim input VAT)
- Standard Rated (Charged at 20% to consumers, but registered for VAT so can reclaim input VAT)
What is outside the scope of VAT?
Dividends Salaries
What are the factors of exempt VAT businesses?
- Cannot register for VAT
- Cannot charge VAT on sales
- Cannot recover VAT on purchases
- Usually insurance companies
what is the VAT rates for standard rated supplies?
- VAT exclusive - 20%
- VAT inclusive - 1/6
what is the VAT rate for reduced rated supplied?
- VAT exclusive - 5%
- VAT inclusive - 1/21
If an error arises and all output VAT is not charged on taxable supply, who is responsible?
The trader, and the value is treated as VAT inclusive
how many VAT registrations to sole traders and companies have?
- Sole traders - single registration
- Each limited company- separate registration
What are the two tests for determining compulsory VAT registration?
- Historic - Do taxable supplies in previous 12 months exceed the limit
Carried out monthly to check this - Future prospects - Will taxable supplies in the next 30 days exceed the limit?
What is the annual registration limit?
£85,000
what is the deregistration limit?
£83,000
Regarding the historic test, when are you required to notify HMRC of exceeding the threshold, and when does the effective change begin?
- Notify within 30 days of the end of the exceeding month
- Effective VAT charging the first day following the day after the exceeding month
Eg If exceeding occurs in April, they must notify by May 30th and it is effective at 1st June
Regarding the future prospects test, when are you required to notify HMRC of exceeding the threshold, and when does the effective change begin?
- Within 30 days of the trader becoming aware the threshold will be exceeded
- Immediately - so at the day the trader became aware
Eg If exceeding is expected to occur in 01/April, they must notify by 01/May and it is effective at 01/April
Taxable supplies is everything except what?
- VAT
- Exempt supplies
- Supplies outside the scope of VAT eg wages/dividends
- Sales of capital assets
How long should VAT records be kept, and how?
- 6 years
- Digitally
what are the advantages of voluntary registration?
- avoid penalties for late registration
- can recover input VAT on purchases
- can disguise the small size of the business
what are the disadvantages of voluntary registration?
- burden of compliance with VAT administration rules
- Must charge output VAT which makes good services more expensive than unregistered business
what is compulsory registration? and when must HMRC be notified?
- a person must deregister when the business ceases to make taxable supplies - HMRC must be notified within 30 days (when person finds out no longer making taxable supplies)
- Deregistration is effective from the date taxable supplies cease
what is voluntary registration?
- a person may voluntarily deregister even if the business continues, if there’s evidence that taxable supplies in the next 12 months will not exceed the deregistration limit
- 12 month period measured starting at any time and effective from date of request or agreed later date
What is the tax point?
The date of supply
Used to determine the quarter VAT falls in
How do you identify basic tax point?
- Identify basic tax point (goods are removed)
- consider three questions:
- has cash been received before basic tax point?
- has invoice been issued before basic tax point?
- has invoice been issued withing 14 days of basic tax point?
How often is VAT usually accounted for?
Quarter
Other than standard or reduced VAT rates, what are the four other contributions to output VAT?
- Goods taken for own use
- Gifts of goods
- Discounted Sales
- Private fuel for employee
What is accounted for output VAT for goods for personal use?
Full replacement cost of the supplies
How are gifts of goods treated for output VAT?
Treated at replacement value, unless the cost of total gifts made to the same person is less than £50 in a year (then no VAT)
are trade samples or gift of services taxable supplies?
no
Is VAT calculated before or after any potential discounts?
Always after! On the price the consumer will actually pay
For discounts on payment terms where the discount could or could not be met, how are invoices raised?
- The invoice is raised with the full amount and the full VAT, with a statement also showing the amounts if the discount is taken.
- A credit note is then issued if the discount is taken to repay the overpayment
- There must be a statement on the invoice that the customer can only recover input VAT on the actual amount paid
How is VAT charged on fuel for employees, where it is used for both private and business use?
All input VAT can be reclaimed
How is output VAT charged for private and business fuel?
On a scale rating, based on the CO2 emissions of the car
Under what conditions can a seller claim output VAT on bad debts as input VAT?
- The debt is over 6 months overdue and,
- The debt has been written off in the seller books
What are the criteria for VAT to be recovered on goods prior to registration?
- Must be acquired for business purpose, and must still be in inventory
- Must have been acquired within past 4 years
What are the criteria for input VAT to be recovered on services prior to registration?
- Services must be supplied for business purpose
- Must have been conducted in past 6 months
On what goods and services is input VAT irrecoverable?
- Cars (unless 100% for business purpose eg driving schools)
- Non-business items
- VAT items for which no VAT receipt is held
- Business entertaining
What are the exceptions to business entertaining?
- Staff entertaining
- Entertaining foreign customers
