VAT: Administration and overseas aspects

Question 1

All registered traders have to/ regarding VAT

Answer 1

• complete a VAT return every return period
• pay net VAT due to HMRC or reclaim net VAT repayable from HMRC
  Details of output and input VAT must be included, together with claims for relief for impairment losses and any errors made on earlier returns below a de minimis limit

Question 2

What is the deadline for filing and payments online for VAT?

Answer 2

• one month and seven days after the end of the quarter

Question 3

VAT refunds

Answer 3

• are normally made within 10 days
• where it is discovered that VAT has been overpaid in the past, the time limit for claiming a refund is four years from the date by which the return for the accounting period was due

Question 4

Who are substantial traders?

Answer 4

• those with a VAT liability exceeding £2.3 million p.a.
• monthly payments on account are required
• payments at the end of moths 2 and 3 in every quarter are 1/24 of the annual liability for the previous year
• any additional amounts are paid with the normal VAT return

Question 5

The main records what must be kept for 6 years:

Answer 5

• copies of all VAT invoices issued
• a record of all outputs - sales day book
• evidence supporting claims for the recovery of input VAT - invoices
• a record of all inputs - purchase day book
• VAT account

Question 6

Normal VAT invoices:

Answer 6

• a VAT invoice must be issued when a standard-rated supply is made to a VAT registered business
• the invoice can be sent electronically provided the customer agrees
• no invoice is required if the supply is exempt, zero-rated or to a non-VAT registered customer
• should be issued withing 30 days of the date that the taxable supply is treated as being made

Question 7

What VAT invoice must contain?

Answer 7

• VAT registration number
• Date of issue
• tax point
• customer’s name and address
• description that identifies goods or services supplied and quantity supplied
• rate of VAT
• Supplier’s name and address
• sequential and unique identifying number
• amount payable excluding VAT
• total VAT exclusive amount
• amount of VAT payable
• rate of any discount offered

Question 8

If supply is less than £250 then less detailed invoice must show:

Answer 8

• the supplier’s name, address and VAT registration number
• the date of supply
• a description of the goods or services supplied
• the consideration for the supply
• the rate of VAT in force at the time of supply

Question 9

When a default surcharge occurs?

Answer 9

• if a VAT return is not submitted on time or payment of VAT is made late
• surcharge liability notice on the trader HMRC will serve

Question 10

When the notice specifies a surcharge period starts?

Answer 10

• starting on the date of the notice and ending on the 12 months anniversary of the end of the VAT period to which the default relates

Question 11

If the trader has further default during the surcharge period there are two consequences:

Answer 11

• the surcharge period is extended to the 12 month anniversary of the VAT period to which the new default relates
• if the default involves the late payment of VAT, then the trader will be subject to a surcharge penalty

Question 12

Calculating surcharge penalty

Answer 12

First period - 2% of unpaid VAT due
Second period - 5% of unpaid VAT due
Third period - 10% of unpaid VAT due
Fourth period - 15% of unpaid VAT due
- surcharge penalties at the rates of 2% and 5% are not made for amounts less than £400
- where the rate of surcharge is 10% or 15%, surcharge penalty is the higher of £30 or the actual amount of the calculated surcharge
- the surcharge liability period will only end when a trader submits four consecutive quarterly VAT returns on time, and also pays any VAT due on time

Question 13

When is a default - penalty interest charged?

Answer 13

• if HMRC raise an assessment, or an error is voluntarily disclosed by the trader, and the net value of errors exceeds the de minimis limit
• is charged from the date that the outstanding VAT should have been paid, to the actual date of payment
• limited to a maximum of 3 years

Question 14

Cash accounting scheme, purpose of the scheme

Answer 14

• VAT is accounted for on the basis of cash receipts and payments, rather than on the basis of the dates of invoices issued and received
• the tax point becomes the time of receipt of payment

Question 15

Advantages of cash accounting scheme

Answer 15

• businesses selling on credit do not have to pay output VAT to HMRC until they receive it from customers
• this gives automatic relief for impaired debts

Question 16

Disadvantage of cash accounting scheme

Answer 16

• input tax cannot be claimed until the invoice is paid. This delays recovery of input VAT
• not suitable for businesses with a lot of cash sales or zero-rated supplies which would simply suffer a delay in the recovery of input VAT

Question 17

Conditions for cash accounting scheme, aimed at smaller businesses:

Answer 17

• the trader must be up-to-date with VAT returns and must have committed no VAT offences in the previous 12 months
• taxable turnover, including zero-rated sales, but excluding sales of capital assets, must not exceed £1,350,000 p.a.
• a trader must leave the scheme once taxable turnover exceeds £1,600,000 p.a.
• c.a.s. cannot be used for goods that are invoiced more than six months in advance of the payment date, or where an invoice is issued prior to the supply actually taking place

Question 18

How annual accounting scheme works:

Answer 18

• only one VAT return is submitted each year
• the annual return must be filed within two months of the end of the annual return period
• nine payments on account of the VAT liability for the year, are made at the end of months 4 to 12 of the year. Each payment represents 10% of the VAT liability for the previous year
• regular payments aid budgeting and possibly cash flow if the VAT liability is increasing year on year
• a new business will base tis payments on an estimate of the VAT liability for the year
• a balancing payment is made when the return is filed
• business may apply to HMRC to agree quarterly payments on account instead of the normal nine monthly payments

Question 19

Conditions for annual accounting

Answer 19

• businesses can join the scheme provided their taxable turnover (excluding the sale of capital assets) does not exceed £1,350,000 p.a.
• the business must be up-to-date with its VAT returns
• businesses must leave the scheme if taxable turnover exceeds £1,600,000 in the previous 12 months or is expected to exceed it in the next 12 months

Question 20

How does the flat rate scheme works?

Answer 20

-the flat percentage is applied to the gross total turnover figure(inclusive of zero-rated, exempt supplies); with no input VAT being recovered
- the percentage varies according to the type of trade that the business is involved in
- a higher flat rate of 16.5% applies to all types of business with limited, or no purchases of goods
- the flat rate scheme percentage is only used to calculate the VAT due to HMRC

Question 21

Conditions to join flat rate scheme

Answer 21

• the scheme the expected taxable turnover for the next twelve months must not exceed £150,000
• a business has to leave the scheme if total VAT-inclusive turnover (including taxable and exempt supplies) exceeds £230,000
• the business must have committed no VAT offences in the previous 12 months
• the flat rate scheme can be used with the annual accounting scheme

Question 22

Export of goods / VAT

Answer 22

a UK VAT registered business should zero rate all exports, regardless of where in the world they are supplied

Question 23

Supplies services to overseas business customer accounting for VAT

Answer 23

• place of supply is overseas (where customer established)
• outside the scope of UK VAT

Question 24

Receives services from overseas business

Answer 24

• place of supply is UK
• reverse charge procedure:
  UK business accounts for ‘output VAT’ at standard UK rate on VAT return. This VAT can then be reclaimed as input VAT

Question 25

Time of supply of cross border supplies of services

Answer 25

For single supplies, the tax point will occur on the earlier of:
- when the service is completed
- when it is paid for