VAT Flashcards
Sale of goods within the EU is called…
a dispatch
Sale of goods to a country outside the EU is called…
an export
Purchase of goods from a country outside the EU is called…
an import
Purchase of goods from a country within the EU is called
an acquisition
Dispatches are zero rated if….
the supply is made to a registered trader and
The supplier quotes his customer’s VAT number on the invoice and
The supplier holds evidence that the goods were delivered to another member state
If these conditions are not met then VAT should be charged on the sale as if it were to a UK customer
Acquisitions
If the customer is VAT registered he is liable to charge himself output tax in the UK at the appropriate rate.
The VAT paid on acquisitions is the amount of input tax. Therefore for a trader only making taxable supplies, the effect will be tax neutral as he will charge himself output tax which can then be recovered as input tax.
However if the trader makes a mixture of taxable and exempt supplies may restrict recovery of input tax and then result in a net charge to VAT
If the trader is not registered for VAT, the supplier will charge local VAT on the sale.
Imports
Imports of goods are chargeable to VAT if the same goods would be chargeable if supplied by a registered trader in the EU.
The importer calculates the VAT on the value of the imports and accounts for it at the point of entry into the EU. This amount is deductible as input tax in the importer’s next VAT Return. VAT is charged on the goods in the normal way when they are sold in the EU.
Exports
Exports of goods outside the EU will be zero rated provided that HMRC is satisfied that the goods have actually been dispatched.
Supplies of services
VAT is chargeable on services supplied in the UK. Otherwise the service is outside the scope of VAT.
most services are supplied
- location of customer’s business or if individual
- supplier’s business
Where services are received by a UK VAT registered trader from another country, the supply is deemed to have been made in the UK under the reverse charge system.
The UK customer must account for VAT on the supply to him. This amount will also be his input tax for the supply. The effect is tax neutral unless the trader is making some exempt supplies.
Partial exemption - standard method
Recoverable amount = total taxable supplies / total supplies
Remember to round UP for a bonus mark
Partial exemption - de minimis limit
If the total amount of input VAT relating to exempt supplies for the quarter exceeds neither of the de minimis limits, all input VAT can be recovered in full.
de minimis limits are - £625 a month on average and
50% of all input VAT for the period.
Partial exemption - simplified tests
Test 1 - input tax does not exceed £625 pm on average
Test 2 - total input tax less directly attributable to taxable supplies does not exceed £625 per month on average
and in either case the value of exempt supplies does not exceed 50% of total supplies
Annual partial exemption test
Gives most businesses the option of applying the de minimis test once a year. It allows a business that was de minimis in its previous partial exemption year to treat itself as de minimis in its current partial exemption year provided it does not expect to incur more than £1m of input tax during the year.
Property transactions -tax rates of Residential buildings
Zero rated:
- construction of a new residential building
- sale of a new residential building
Exempt
- sale of an existing residential building
- lease of a residential building
Property transactions -tax rates of commercial building
Standard rated
- construction of commercial buildings
- sale of new (less than 3 years old) commercial buildings
- work on an existing commercial building
Exempt - but subject to the option to tax
- sale of old (three years or more) commercial building
- lease on any commercial building (premium and rent)
