`vat Flashcards
What are the three essential elements needed before VAT is charged?
Taxable Person, Taxable Supply, Business
Define Taxable Person in the context of VAT.
Person registered for VAT
What constitutes a Taxable Supply?
Supply of Goods & services other than Exempt
What is defined as a Business under VAT?
Taxable activity carried on by a Taxable Person
What is the standard rate of VAT?
20%
What are reduced rated supplies and give an example?
5% VAT, e.g., Domestic Expenses like Electricity & Gas supply
What characterizes zero-rated supplies?
Supplies that charge ‘0%’ output VAT, includes basic necessities
List examples of zero-rated supplies.
- Children Clothing
- Non-Luxury Food
- Books & Newspapers
- Medicines
- Transport (Not Taxi)
- Construction of Dwellings
What are exempt supplies?
Supplies outside the scope of VAT
List examples of exempt supplies.
- Land & Shares
- Postal Services
- Financial Services
- Education
- Insurance
- Repair of Dwellings
- Health services (by Registered Doctor)
- Sports (Sports competition used to provide prizes)
When is VAT registration compulsory?
When turnover of an entity exceeds £85,000
What is the historic turnover test for VAT registration?
Cumulative total of taxable supplies for the last 12 months or shorter period exceeds the registration limit
What must be done within 30 days of exceeding the registration limit?
Notify HMRC
When does VAT registration become effective after notification?
From end of the notification month
Is it necessary to register if taxable supplies for the next 12 months are expected to be less than £83,000?
No
What is the future turnover test for VAT registration?
If estimated Taxable supplies within next 30 days exceed £85,000
What are the advantages of voluntary registration for VAT?
- Avoids penalty for late Registration
- Can Recover input VAT on purchases
- Can disguise companies’ size
What are the disadvantages of voluntary registration for VAT?
- Compliance with all VAT administration rules
- Must charge VAT, can increase prices or reduce profit margins
What are the consequences of VAT registration?
- Output VAT must be charged on taxable supplies
- A VAT Reg. Number is allocated
- Each Reg. Trader is allocated a tax period for filing return
- Input VAT is recovered on all purchases and expenses
- Appropriate VAT records must be maintained
Can a person be registered for VAT more than once?
No, a person can be registered only once
How does VAT registration work for partnerships?
Separate businesses carried on by the same partners will have a single registration
What are the requirements for recovery of pre-registration input VAT for goods?
- Goods must be acquired for business purpose and not used prior to registration
- Goods have not been acquired more than 4 years prior to registration
What are the requirements for recovery of pre-registration input VAT for assets?
- Assets must be acquired for business purpose and still being used at the time of registration
- Have not been acquired more than 4 years prior to registration
What are the requirements for recovery of pre-registration input VAT for services?
- Service must be supplied for business purposes
- Services should not have been supplied more than six months prior to registration
What is the VAT treatment for goods imported into the UK from EU or Non-EU countries?
Treated as if purchased from the UK, VAT is paid to HMRC and can be reclaimed according to the tax point.
Regular importers can defer VAT payment by setting up an account with HMRC and providing a bank guarantee.
How is VAT treated on exports from the UK?
Treated as zero-rated supplies and outside the scope of VAT.
What are the conditions for a Transfer of a Going Concern to be outside the scope of VAT?
- Same type of trade is carried on after the transfer
- No significant break in trading
- Owner two is or will be registered for VAT immediately after the transfer
- Going concern must be transferred to owner two.
What defines the basic tax point for goods and services?
- Goods: When they are collected, delivered, or made available
- Services: When they are performed.
What is an actual tax point?
It can be earlier if a VAT invoice is issued or payment received before the basic tax point, or later if a VAT invoice is issued within 14 days after the basic tax point.
How is VAT calculated on net and gross prices?
- Net price (VAT excluded): Net price X 20%
- Gross price (VAT included): Gross price X 20/120.
What is the VAT treatment for settlement discounts?
Cash discounts are considered only for the part of customers who have availed the discount.
What is the VAT treatment for gifts of stock or fixed assets?
Treated as taxable supplies at replacement value, with VAT exempt on gifts of £50 or less within a year and samples (no restriction on number).
What expenses are typically considered irrecoverable input VAT? 3
- Client entertainment (recoverable on staff entertainment)
- Motor cars (unless 100% used for business or leased, where 50% recoverable)
- Partially business and partially private expenses (only recover VAT on business part).
What are the requirements for relief for impaired debts?
- At least 6 months have elapsed from the due date
- Debt must have been written off in the seller’s accounts.
- Bad debt relief is as input VAT.
What are the options for recovering VAT on motor expenses (fuel)?
- Option 1: Do not recover, no adjustment
- Option 2: Recover only business use, no adjustment
- Option 3: Recover full VAT, adjust for private use
- Option 4: Recover full VAT, adjust as per Fuel Scale Charge.
What is included in the VAT return for XYZ Co. for the quarter?
- Output VAT
- Sales (Turnover)
- Input VAT
- Purchases
- Expenses
- Bad Debt
- VAT Liability Payable/(Repayable).
What does the VAT Return show?
The total output & input VAT for the period
This is essential for understanding VAT liabilities.
When is the online VAT Return due?
One month & 7 days after the end of the period
This is critical for timely compliance.
How quickly are VAT refunds normally made?
Within 10 days
Timely refunds are important for cash flow management.
What is the time limit for claiming a VAT refund for overpayments?
Four years from the due date of the return
This ensures taxpayers can recover overpaid VAT.
What is the Making Tax Digital (MTD) threshold for businesses?
Above the VAT threshold of £85,000
This requirement helps streamline tax reporting.
What must businesses use under Making Tax Digital?
MTD software to compile a digital tax return
This aids in accuracy and efficiency in submissions.
What qualifies a taxpayer as a Substantial Trader?
If VAT liability of the last year exceeds £2.3 million
Substantial Traders have different payment obligations.
What is the formula for calculating a Payment on Account installment?
Last year’s Liability * 1/24th
This is a method to manage large VAT liabilities.
What records must be preserved for VAT purposes?
At least 6 years, including:
* Invoices issued to customers
* Sales daybook
* Invoices received from suppliers
* Purchase daybook
* VAT Account
Keeping accurate records is crucial for compliance.
When must a normal VAT invoice be issued?
Within 30 days of the date of supply
Timeliness is essential for VAT accountability.
What information is required on less detailed VAT invoices for supplies under £250?
Must include:
* Retailer’s name, address, and VAT registration number
* Date of supply
* Description of goods/services
* Consideration for the supply
* Rate of VAT
These invoices are simpler for small transactions.
What are the penalties for late filing?
Late Filing Penalty based on points
A point system helps manage compliance.
What happens when the penalty threshold of four points is reached?
A £200 penalty is charged
This serves as a deterrent for late submissions.
What is the late payment penalty if the VAT liability is paid within 16 to 30 days of the due date?
A 2% penalty
This encourages timely payments.
What is the late payment penalty if the VAT liability is paid later than 30 days of the due date?
Increased to 4% and a daily penalty at an annual rate of 4%
This escalates the cost of late payments significantly.
What is the Annual Accounting Scheme?
1 VAT Return prepared per year, due 2 months after end of the VAT period
This simplifies annual reporting for eligible businesses.
What conditions must be met to qualify for the Annual Accounting Scheme?
Taxable Turnover must be <£1,350,000 & VAT returns must be up to date
Compliance with these thresholds is essential for participation.
What is the Cash Accounting Scheme?
Accounts for VAT on the basis of cash paid and received
This method helps businesses manage cash flow effectively.
What is the Flat Rate Scheme?
VAT liability is computed using a Flat Rate % of total Turnover inclusive of VAT
This simplifies VAT calculations for small businesses.
What is a significant disadvantage of the Flat Rate Scheme?
Input VAT is not recoverable
Businesses must weigh the benefits against this limitation.
