VAT Calculations - Week 2 Flashcards
Source documents for VAT examples:
- bank statement
- Petty cash book
- Cash book
- Purchase invoices and credit notes
- VAT receipts
- Sales invoices and credit notes
It is important that figures used to prepare a VAT return are reliable, therefore either ____ or ______ documents should be used.
Original, verified source documents
VAT relating to PPD
An invoice is raised for the full amount and the PPD offer is shown on the invoice. If the customer takes the discount a credit note must be issued for the discount, together with the associated VAT.
The credit note acts as an adjustment to VAT and reduces the amount of VAT payable.
Can a simplified invoice include any exempt supplied?
No
Tax points
The date on an invoice when the VAT applies.
There are two tax points:
- Basic tax point
- Actual tax point
Tax point: Deposits and advance payments
The tax point is the date that the advance payment is received. With a VAT invoice being issued for the advance, showing this date.
The correct tax point is important for:
- Eligibility for special VAT schemes
- Applying the correct rate of VAT
- determining the correct VAT period
HMRC wants businesses to keep records of all their transactions so:
- They are able to prove to HMRC that the level of input tax which has been reclaimed is accurate
- They are able to prove to HMRC that the level of output tax which has been paid has also been calculated correctly
The accounting records that most businesses keep in order to verify their sales include:
- Sales day book
- Sales returns day book
- Cash receipts book
- Orders and delivery notes, bank statements and paying-in slips
The accounting records that most businesses keep in order to verify their purchases include:
- Purchases day book
- Purchases returns day book
- Cash and petty cash payments book
Time limit for a VAT invoice to be issued:
Within 30 days of supply.
If missed, potential penalty
A taxable person can only reclaim input tax if they have:
A valid VAT invoice for the purchase.
E-invoice requirements:
- The authenticity of the origin, integrity of invoice data, and legibility can all be ensured. This is done by:
- using electronic signatures
- electronic data interchange (EDI) with customers and suppliers
- business controls which create a reliable audit trail between invoice and supply; for example, being able to link a sales invoice to the original sales order, and system controls existing to prevent that sales order from being changed. - The customer must agree to receive invoices electronically
- The invoices must be produced in an acceptable format, for example XML or PDF
- The invoice must be securely transmitted
- The business must maintain sufficient internal controls relating to completeness, accuracy, and prevention and detection of errors, and must have a recovery plan in case of system failure.
When the customer will account for VAT via a reverse charge, the VAT charged by the seller is:
Nil. The customer accounts for the VAT.
Domestic reverse charge: what it is, what must be on the invoice
Reverse charge for uk business, must be registered under Construction Industry Scheme
The following details must be included on the VAT invoice:
- A note to make it clear that the domestic reverse charge applies and that the customer is required to account for the VAT
- clearly state how much VAT is due under the reverse charge, or the rate of VAT if the VAT amount cannot be shown.
- Legal wording to reference the reverse charge applying, for example ‘reverse charge: VAT Act 1994 Section 55A applies
If the expenditure total is £25 or less including VAT, what is required to reclaim input VAT on the following expenses:
- Telephone calls or car park fees
- Purchases made through coin operated machines
No invoice is required to reclaim VAT(a simple receipt is acceptable, provided the business reclaiming the VAT understands that the supplier is VAT-registered).
VAT invoice: Prompt payment discount
The VAT charged must be based on the actual consideration received. There are two ways of achieving this:
1. Issue an invoice for the full amount, followed by a credit note if the discount is taken up.
2. Issue one invoice, with both possible prices and VAT amounts specified, with clear instructions to the customer regarding recoverability of their input tax.
Is VAT calculated on the amount before or after trade discount?
After.
Can VAT invoices be amended once issued?
No.
This could be viewed as an act of fraud. A credit note should be issued instead.
Tax point for continuous supply of a service for a period of over a month the tax point is:
the earlier of the issue of an invoice or the payment date
When is the physical supply of services considered to be?
The date all the work is completed
When is the supply of goods considered to be?
When one of the following happens:
- The supplier sends the goods to the customer
- The customer collects the goods from the supplier
- the goods(which are not either sent or collected) are made available for the customer to use. For example, if the supplier is assembling something on the customer’s premises
Proforma invoice
An invoice for goods or services that haven’t been supplied yet.
It is not a VAT invoice and should be clearly marked with the words ‘This is not a VAT invoice’.
When might a modified invoice be used?
If retail supplies are sold for more than £250.
