VAT Flashcards
What are output and input VAT?
O - VAT charged on goods sold
I - VAT paid by business
What do businesses pay to HMRC?
Net off input and output VAT
Pay the excess of output VAT
What is a taxable supply and what 3 rates are included?
Supply of goods/services other than exempt items or supply outside of VAT
Output tax charged and input tax recoverable
Standard rate 20%, Reduced rate 5%, Zero rated
What are the 4 examples of supplies of goods?
Sale of goods for consideration
Gifts of business assets that do not exceed £50 in 12 months/ a sample
Goods permanently taken for private use
Sale of goods on hire purchase
What are the 5 examples of supplies of services?
Sale of services for consideration
Hiring goods to customers
Goods temporarily taken for private use
Private use of services supplied to business
Private use of fuel
When is VAT registration compulsory?
When total taxable supplies exceed £90,000
What are the 2 tests to determine compulsory registration?
Historic test
Future prospects tests
What is the historic test?
At the end of each month, has previous 12 months exceeded threshold
Notify HMRC within 30 days of end of month threshold exceeded
Registration takes effect from 1st day after end of month following exceeded month
What is the future prospects test?
Reasonable grounds to believe that taxable turnover in next 30 days will exceed threshold
Must notify HMRC by end of 30 day period threshold expected to exceed
Registration takes effect from beginning of 30 day period
When is a business exempt from registration?
Only zero rated supplies
Small proportion of supplies standard rated
What is deregistration?
Compulsory when ceasing to make taxable supplies
Notify HMRC within 30 days
Takes place on date taxable supplies ceased
Voluntary deregistration when next 12 months will not exceed £88,000
On deregistration, a VAT charge is made on trading stock and capital assets that input VAT has been recovered. Output tax paid on this if more than £1000
How is the VAT charged calculated for standard rated and reduced rate?
VAT-exclusive: x 1/5 x1/20
VAT-inclusive: x 1/6 x1/21
What is the basic tax point and the actual tax point?
BTP: date at which goods are removed/despatched
ATP: the earlier of the date the goods are supplied (invoice issued within 14 days of BTP, ATP is date of invoice), date payment received, date invoice issued
What are the 2 choices for a supplier offering discounts?
Charge full amount on invoice and issue credit note
Invoice must contain terms of discount and statement that trader can only recover input tax paid to supplier
What is a fuel scale charge?
Fuel provided for private monitoring charged at scale rate based on CO2 rating
When is bad debt relief given?
Invoice more than 6 months overdue
Debt written off in supplier account
Claim made within 4 yrs of eligibility for relief
Supplier has copy of VAT invoice and shows output VAT been paid
When can input VAT be recovered?
Good/service has been supplied
VAT invoice
Business purpose
Partially recover partly business use goods by deducting all input tax for private use
Partially recover partly private use goods by deducting all input tax for business use
What is input VAT irrecoverable on?
Motor cars unless pool car
Customer entertaining
Items with no VAT receipt
Non-business items
When can input VAT be recovered before registration?
Goods: Supplied within 4 years before registration
For business purposes
On hand at the of registration
Services: Supplied in 6 months before registration for business purposes
When must VAT returns be filed?
VAT100 submitted online by 1 month and 7 days after last day of the month following end of return period
Tax can be paid by direct debit collected 3 working days after filing date
What is a substantial trader and when should they make payments?
VAT liability in excess of £2.3 mil
Make payments on account each quarter
Payments due at end of 2nd and 3rd months of quarter
Each payment is 1/24 of total VAT liability for previous year
What are the conditions of the annual accounting scheme?
Taxable supplier in following year not expected to exceed £1.35mil until £1.6mil
Make 9 equal monthly payments of 1/10 prev yr liability
Or 3 quarterly payments of 25%
First payment due at end of 4th month electronically
Balancing payments due when VAT return is made - 2 months of end of year
What are the advantages of a cash accounting scheme?
Output VAT doesn’t have to be accounted for until payment received
Automatic bad debt relief
What are the conditions for the cash accounting scheme?
Small businesses can join if taxable supplies won’t exceed £1.35mil until £1.6mil
All VAT returns submitted to date and all outstanding VAT paid
No VAT offence or penalties in previous 12 months
What is the flat rate scheme?
Allows businesses to calculate net VAT by applying a flat rate % to VAT inclusive turnover
16.5% for limited cost traders, 1% reduction during 1st year
What are the conditions and advantages of the flat rate scheme?
Annual taxable supplies does not exceed £150,000
Annual income less than £230,000
Reduction of admin
Less VAT payable
What records must be kept for HMRC?
Order and delivery notes
Invoices and credit notes
Purchase and sales day books
Records of daily takings
Cash books
Bank statements
Annual accounts
What must be included in a VAT invoice?
Identification number
Business name and contact info
Name and address of customer
Description
Date of invoice and tax point
Price quantity and VAT rate
Discounts
Charged excluding VAT
Total VAT charged
Simplified invoice if less than £250
