VAT Processes Chapter 1 & 2 Flashcards
How do you differentiate from Output and Input tax?
Output tax - Must charge VAT on taxable supplies - Charging out
Input Tax - Can reclaim VAT paid on business supplies - Buying in
Who pays VAT and who pays VAT to HMRC
VAT is paid by the final consumer, all the businesses involved in the selling and manufacturing processes pays VAT to HMRC
Explain the difference between zero and exempt rated supplies?
Zero rated supplies are taxed at 0% meaning the supplies are taxable. Businesses selling zero rated goods can reclaim the VAT charged on supplies they have bought. EG: Food, Transport
Exempt supplies are NOT taxed at all meaning that the supplier cannot reclaim any input VAT on purchases. EG: Health care, education.
If a VAT registered business pays £100 + £25 VAT for a product and sells it for £125 + £25 VAT who bears the cost of VAT
The Consumer bears the full £25 VAT, the business does not bear any of the cost
If a business reaches over the threshold and fails to register for VAT, what will HMRC do?
HMRC will treat the invoices as VAT inclusive and take all the VAT which should have been charged.
If a business reaches the threshold how long will they have to be registered by. For example if a business exceeds threshold on 31st MAY 2022
Within 30 days - June 30th meaning the registration will be active from 1st July
If a business is expected to turnover more than the threshold over the next 12 months should they register now or monitor and register later?
They should register later as it is EXPECTED not confirmed - historic method
If a business is expected to exceed the taxable turnover during the next 30 days should they register now or monitor and register later?
Register now - Future turnover method
How long should business records be held for?
6 years
What is a simplified invoice?
An invoice charging for supplies under £250 or less INC VAT. Cannot include any exempt supplies
What is a pro-forma invoice?
A document issued by a supplier inviting a buyer to pay for goods before they are supplied - NOT A VAT INVOICE
What is Reverse Charge Invoicing?
A mechanism where customers charge themselves VAT rather than the supplier. Designed to prevent VAT fraud.
When is the basic tax point?
The basic tax point is when the business despatches goods, or the customer collects them
How to determine a tax point?
The tax point is the earliest of the following:
Despatch/goods have been made available (BASIC TAX POINT)
Invoice issued
Payment received
If the invoice or payment date ISN’T the earliest then what is the next step to determine the tax point?
Is the invoice date within 14 days of the BASIC tax point?
IF YES the invoice date is the tax point
IF NO the basic tax point applies
