VAT

Question 1

VAT is charged on

Answer 1

taxable supplies of goods and services in the UK by a taxable person and is suffered by the end user.

It is also suffered on the import of goods (whetehr for business or not) or on services recieved from abroad if a taxable person recieves them.

Question 2

Define a taxable supply

Answer 2

A supply of goods or services made in the UK other than an exempt supply

Question 3

Compulsory reg

Answer 3

A person must register if they fail the historic or future test

Question 4

What are the historic and future tests?

Answer 4

Historic - Where atxable supplies are over 85k in the prev 12 months. Have 30 days to notify HMRC and start charging VAT from the end of the month that exceeded

Future - where taxable supplies are expected to exceed 85k in the next 30 days. 30 days to notify HMRC. Start charging immediatly.

Question 5

Dereg

Answer 5

Compulsory - Cease making taxable supplies

Voluntarily - If taxable supplies full under 83k

For both - 30 days to notify HMRC and dereg from date of request. VAT due on all assets owned at date of dereg that input VAT was claimed on. If VAT is less than £1,000 there is no need.

Question 6

VAT group registration

Answer 6

Allow groups to nominate one entity to prepare the VAT returns.

Intragroup transactions are disregarded

All members are jointly liable for VAT liability

Question 8

Subs under common control of an overseas company

Answer 8

Can also apply for group reg

Question 9

The inclusion of an exempt entity

Answer 9

could result in the whole group becoming partially exempt

Question 10

Cash accounting

Answer 10

Available if turnover is less than £1,350,000 in following 12 months of returns

Advant - Cash flow and automatic bad debt relief

Trade must leave the scheme once turnover exceeds 1.6m

Question 11

Annual accounting

Answer 11

Available if turnover not expected to exceed

Question 12

Flat rate scheme

Answer 12

Available if not expected to exceed £150,000 in next 12 months

1% deduction in first year of VAT reg

if the 16.5% VAT rate applies it is usually nto advantageous to use the flat rate scheme unless input VAT is really low

Question 13

If a business passes the partial exemption tests it can

Answer 13

reclaim all input VAT

Question 14

What is the partial exemption / de minimis test?

Answer 14

Total input VAT is < £625 per month and exempt supplies < 50% of total supplies

OR

Total Input less input VAT re taxable supplies < £635 per month and exempt supplies < 50% total supplies

Question 15

To use the annual deminimis test

Answer 15

The trader must:
Have been deminimis in the previous partial exemption year
Consistently apply the annual test
Have reasonable grounds to not expect to incur more than 1m input tax in its current year.

If these are satisfied the trader can reclaim inut VAT in full. Giving a cash flow benefit.

If one test has failed then there must eb an adjustment

Question 16

If a trader does not use the annual test they must use the

Answer 16

de minimis test each VAT return period

Question 17

Annual adjustment

Answer 17

If tests 1 and 2 are passed - no need to pay back
If tests 1 and 2 failed - Will need to carry out a full partial exemption to determine is test 3 is passed. If it is, no VAT needs to be paid back

Question 18

Business gifts are not supplies of gifts if:

Answer 18

The total cost to the same person does not exceed £50 in any 12 month period. If exceeded VAT is due on entire amount and the £50 limit and 12 mo period restart

The gift is a sample (unlimited samples are allowed)

Question 19

What are the common items that are Z rated

Answer 19

Human and animal food
Books and newspapers
Construction work on new homes or the sale of a freehold or lease over 21 years
Export of goods
Clothing and footwear for young children and protective clothing

Question 20

What are the common items that are exempt?

Answer 20

Sales of freeholds (other than commercial buldings within 3 years from completion) and leaseholds of land and buildings inc surrender of lease
Financial services
Insurance

Question 21

What are the common items that are 5%

Answer 21

Fuel for domestic use
Services installing energy saving materials to homes

Question 22

Hot food and luxury food items

Answer 22

Have VAT at 20%

Question 23

If a business makes taxable supplies int he UK but has no establishment here

Answer 23

It must register for VAT, whatever the value of it’s taxable supplies - even if below the threshold.

Question 24

When a business is aware they should be charging VAT but they do not have a VAT number

Answer 24

They should gross uo invoices and let customers know that a replacement invoice stating the VAT and VAT number will follow. Once the VAT number is recieved all customers should receive the new invoices within 30 days.

Question 25

Exemption from reg

Answer 25

If a person makes only Z rated supplies they are able to apply for an exemption A person who also only has a small amount of S rated supplies can also apply provided they are normally in the position of receiving a refund

Question 26

Is is possible to apply for

Answer 26

advange group reg but HMRC has 90 days to decline.

Question 27

Changes in legal status also require dereg

Answer 27

Sole trader becoming a partnership and vice versa Business becoming incorporated and vica versa

Question 28

What are the consequence sof degreg?

Answer 28

All inventory and assets that have had VAT reclaimed are chargeable. Not applicable if total VAT is under £1,000

Question 29

If a business or part of it is sold to another taxable person as a going concern

Answer 29

there is no need to dereg. Such transfers are outside the scope. The new owner takes over the rights and liabilities.

Question 30

Vat incurred before reg

Answer 30

Goods must have been aquired for business and have not been sold before the date of registration. VAT must have been incurred in the prev 4 years If for services - were for a purpose which was carried on at the time of supply and the services were supplied within prev 6 months

Question 31

The following input VAT is not deductible

Answer 31

VAT on purchased cars that are not wholly for business purposes such as resale or a taxi business. If VAT is not originally reclaimed then VAT is not charged on the sale. 50% of the VAT on leased cars which are qualifying cars - cars that have not already been irrecoverable. Business entertaining - unless overseas customers Adjustments for personal use.

Question 32

If fuel is reimbursed by an employee

Answer 32

It is a taxable supply and VAT must be accounted for

Question 33

If fuel is either not reimbursed or is low cost

Answer 33

A business can: Not claim VAT in respect of fuel so no output tax is charged Claim input VAT only on the fuel for bsuiness journeys Claim input VAT but then have to charge output VAT on the receipts based on full cost or the VAT fuel scale charge

Question 34

A trader may claim a refund of VAT on amounts unpaid by debtors if: (Impairment loss relief)

Answer 34

They have accoutned for the VAT The debt is over 6 months old The debt has been written off on the creditors account

Question 35

Impairment loss relief is available

Answer 35

4 years after of the time the bad debt became eligible for relief - i.e 4 years and 6 months from the date it fell due.

Question 36

A person whos input VAT will regulary exceeed their output VAT

Answer 36

Can elect for 1 month VAT returns

Question 37

Records must be obtained for

Answer 37

6 years

Question 38

Substantial traders for VAT

Answer 38

Once a traders liability exceeds 2.3m in a 12 month or less periodthey must start mkaing payments on account dueing each quarter. the first payment is due one month before the end of the quarter and the second is due at the end of the month which is the final month of the quarter. The amount paid is 1/24 of the traders annual VAT liability in the period that the threshold was exceeded. VAT due on imports from outside the EU are ignored. they do not recieve the extra 7 days to pay

Question 39

Further info on substatntial traders

Answer 39

Once a trade is in the scheme, payments on account are checked annually. Can apply to reduce payments on account at any time if VAT liability for last 4 returns is less than 80% of total that payments on account were based. Same for increases. Can apply to leave the scheme is VAT liab less than 1.8m in prev 12 months or if at annual review under 2.3 then can leave anyway.

Question 40

Other options

Answer 40

Trader can also just elect to pay actual VAT bill on a monthly basis insterad of making payments on account and cotinue to submit quarterly retuns as long as HMRC are satisfied they are paying a sufficient amount.

Question 41

What is the time limit to reclaim overpaid VAT?

Answer 41

4 years

Question 42

HMRC can refuse to make any payment that

Answer 42

would unjustly enrich the claimant and was notsuffered by the taxpayer unless the taxpayer can show loss or damage to their business as a result.

Question 43

What is a composite supply

Answer 43

Cannot be split into components - One element of the suppy is incidental to the main element - Inflight meal as it is part of the flight price

Question 44

What is a mixed supply?

Answer 44

when different elements of the supply are subject to different VAT rates

Question 45

When business goods are put to non business use

Answer 45

VAT must eb accounted for on the cost to the taxable person of providing that service/goods

Question 46

Land and buildings

Answer 46

Standard rated - sale of freehold of new commercial building (less than 3 years old) Z rated - Construction of new dwellings to be used for residential or charitable purposes Exempt - Most other transactions in commercial property for eg the rent/lease of a property

Question 47

If a taxable person is using the building for their trade they X If they have partially exempt sales then X If a new commercial building is purchased as an investment property and rented out X

Answer 47

Can recover the input VAT assuming they sell taxable supplies Recover using the capital goods scheme Input VAT suffered is not allowable unless they opt to use the option to tax which means VAT can be recovered on the building along with any running costs going forwards

Question 48

Option to tax

Answer 48

Chosen as the VAT on the purchase and future running costs can be claimed. This does mean that VAT needs to be charged on the rental income which would normally be exempt. VAT will also need to be charge on the sale of the property. Does not transfer to new owner

Question 49

When can the option to tax be revoked?

Answer 49

During a 6 month cooling off period Where no interest has been held in the property for 6 years or more Where more than 20 years have elapsed since the election first had effect

Question 50

Transfer of going concern - what rules should apply

Answer 50

The supply of assets are deemed to be outside the scope. Purchaser must be VAT registered Assets to be used int he same kind of business If only part is sold, that part is capable of seperate operation There is no significant break in trading VAT on buildings is still applicable unless new owner elects option to tax

Question 51

What is Capital goods scheme

Answer 51

Mainly effects partially exempt businesses and enables the amount of VAT recovered ro be adjusted for each years use

Question 52

CGS applies to

Answer 52

Computers boats and aircraft costing 50k or more which are dealth with over 5 VAT years Land and buildings costing 250k or more which are dealth with over 10 VAT years

Question 53

Where an asset under the capital goods scheme is purchased

Answer 53

Initial recovery of input VAT is based on the assets initial use. For partially exempt businesses the vAT recovery is based on it's use in the first quarter and then adjusted at the end of the VAT year

Question 54

What is the formula for the adjustment?

Answer 54

Orig Input VAT / 10/5 intervals X (taxable use now - org taxable use) The adjustment is made in the second VAT return following the end of the VAT year

Question 55

If the asset is sold before the end of the recovery period

Answer 55

two adjustments are needed: The normal adjustment for the VAT year of sale as if the proportion of use for the period from the start ofd the year until the date of sale had applied for the entire VAT year A sale adjustment for each remaining VAT year of recovery calculated using 100% if VAT on sale and 0% if exempt sale

Question 56

There are now penaties for two types of lateness

Answer 56

Late filing Late payment There is also late payment interest

Question 57

Late filing penalties

Answer 57

A point is received for each late filing. 4 points = £200 penalty Thereafter each point = another £200 penalty

Question 58

Penalty points expire after

Answer 58

Penalty points expire after 2 years but nto once the penalty threshold is reached. Once the threshold has been reached a business has to submit returns on time over a period of 12 months for their penalty points to be reset to zero.

Question 59

Late payment penalties

Answer 59

Each late payment is considered seperatly. No penalty if paid within 15 days of due date 2% if paid wihtin 16-30 days 4% if paid more than 30 days In addition a daily penalty at an annual rate of 4% is charged at the 30 day point. Late payment interest is charged from the due date to the date of payment

Question 60

Errors corrected on next return

Answer 60

VAT errors not exceeding 10k net or 1% net VAT turnover for return period (upper limit of 50k can be corrected on the next return Other errors should be notified to HMRC on a VAT 652 A penalty for error may be made and interest may be charged on the error if it exceeds the thresholds above

Question 61

Reasonable excuse

Answer 61

A penalty may not be due if the taxpayer can show that there is a reasonable excuse. Ignorance of complex matters can constitute an excuse or misunderstandings

Question 62

Place of supply

Answer 62

If goods ar eprovide din the UK they are subject to UK VAT If a supply of services is B2B then it is treated as being provided where the customer has established their business. B2C is where the supplier has established their business

Question 63

An importer of goods

Answer 63

Must account for output VAT at the point of entry into the UK and can claim the input VAT payable on their next VAT return

Question 64

Postponed VAT accounting is where

Answer 64

The output VAT is accounted for on the next VAT return and not the one when the goods enter the UK. This gives a cashf low advantage

Question 65

Duty Deferrment scheme

Answer 65

Needs to be approved. Deferred charges are calculated for imports for each calender month and must be paid in one sum on the 15th of the month following importation

Question 66

HMRC Warehouse

Answer 66

Import of the goods into the warehouse is disregarded but output VAT is accounted for either when the goods are removed or under the Duty Deferrment scheme if the trader is approved

Question 67

Export of goods

Answer 67

Z rated

Question 68

VAT on international services

Answer 68

Where B2B services are treated as supplied in the UK, the UK business customer must apply the reverse charge

Question 69

The tax point for a RC transaction is the earlier of

Answer 69

The date of payment The date of supply