VAT Flashcards
What is VAT charged on?
- any supply of goods or services made in the UK
- where it is a taxable supply
- made by a taxable person
- in the course of furtherance of any business carried on by that person
What is the supply of goods or services?
Any supply made in the UK of goods or services done in return for consideration
What is made in the UK?
The place of supply of the relevant goods or services must be in the UK
What is a taxable supply?
Any supply made in the UK which is not an exempt supply
What is a taxable person?
A person who is, or is required to be, registered for VAT purposes - includes individuals, partners, companies and unincorporated organisations
What is in the course or furtherance of any business carried on by them?
Basically any economic activity carried on, on a regular basis
When must a person be VAT registered?
- if at the end of any month the value of their taxable supplies in the period of one year or less has exceeded the VAT registration threshold
Or
- at any time there is reasonable grounds for believing that the value of their taxable supplies in a period of 30 days then beginning will exceed the VAT registration threshold
What is the current VAT threshold?
£90,000
If a person is required to be VAT registered because at the end of any month the value of their taxable supplies in the period of one year or less has exceeded the VAT registration threshold, when must the person notify HMRC and when will they be registered?
They must notify HMRC within 30 days
They will be registered from the beginning of the second month after taxable supplies went over the threshold
If a person is required to be VAT registered because at any time there is reasonable grounds for believing that the value of their taxable supplies in a period of 30 days then beginning will exceed the VAT registration threshold, when must the person notify HMRC and when will they be registered?
- must notify HMRC within 30 days
- they will be registered from the beginning of the 30-day period
Can a person voluntarily register to be VAT registered?
Yes
What advantage is there in being VAT registered?
Input VAT can be recovered
What disadvantage is there in being VAT registered?
Output VAT will need to be charged on supplies of goods and services
When can a person apply to have their VAT registration cancelled?
Where the value of their future annual taxable supplies will not exceed the VAT deregistration threshold - currently £88,000
What is output tax?
The tax chargeable by a business when making a supply of goods or services is called output tax. The VAT relates to the output of the business
What is input tax?
The VAT paid by a person on goods or services supplied to the person is called input tax. The VAT relates to goods and services bought in by the person
What VAT is paid to HMRC?
Tax to HMRC = output tax charged to customers less input tax suffered by business
Only difference goes to HMRC
If there is no output tax in any VAT accounting period, can it be used in future?
Yes, possible to reclaim any input tax incurred where it is intended future output tax will be charged
What is the standard rate of VAT?
20%
What presumption arises in relation to VAT and prices?
Price is deemed to be VAT inclusive unless the contract otherwise states
How can the VAT element of the total price be calculated?
By multiplying the purchase price by 1/6
What are the four potential types of supply at business can make?
- standard rated
- reduced rated
- zero rated
- exempt
What things are charged at the reduced rate?
- domestic heating and power
- installation of mobility aids for the elderly
- smoking cessation products
- children’s car seats
What kind of things are zero rated?
- Some food
- sewage and water
- books/newspapers
- talking books for the blind
- new houses and construction of new houses
- public transport
- children’s clothing
What is the practical difference between zero rated and exempt supply?
- zero rated still charges VAT just at zero rate on output so can still recover any VAT suffered on input
- exempt supply means no VAT can be recovered as to VAT suffered on input
What kind of things are exempt from VAT?
- provision of insurance
- finance
- education/health services
- sale of land and buildings (unless new commercial building or suppler of commercial building chooses to make supply standard rated by waiving exemption)
How are businesses to account their VAT to HMRC?
Registered businesses are required to keep VAT records and make their VAT return online
If a taxable business is making a standard or reduced rate supply of goods or services to another taxable business, what must they do?
They must supply the customer/client with a VAT invoice within 30 days of the supply and keep a copy
How often must taxable businesses submit a VAT return?
Every three months to HMRC
When is VAT payment due to HMRC?
Within one month and seven days after the end of the VAT period
What must the VAT return show?
The total output tax charged on the making of taxable supplies during the VAT period less the total input tax attributable to the making of taxable supplies
If a business normally pays more than £2.3 million a year to HMRC in VAT, when must they make their VAT payments?
They must make monthly payments of account and pay balance when submitting the quarterly VAT return
Why does retail have a special VAT scheme?
For retailers who find it difficult to issue VAT invoices for the large number of supplies that they make direct to the public
What is the cash accounting VAT scheme?
Where a business has an annual turnover of less than £1,350,000 (excluding VAT and exempt supply) they may opt to use a cash accounting scheme if certain conditions are met
What is the annual accounting scheme?
Where a business has an annual turnover of less than £1,350,000 (excluding VAT and exempt supply) they may be permitted by HMRC to make an annual VAT return. The return is paid in instalments during the year with the balance being paid when the VAT return is submitted
What is the flat rate scheme?
Where a VAT registered business has a taxable an annual turnover of not exceeding £150,000 (excluding VAT) and a total annual turnover (ie to include VAT charged to the business and the value of any exempt and other non-taxable income) not exceeding £230,000, the business may elect that VAT be charged at a flat rate on turnover rather than on every single transaction
