WS 2 Flashcards
When you think of tax, what one thing will it not ever relate to or tax is something that it will try to avoid?
Insurance stuff
Law firms… are they subject to tax?
Yes. Legal services are taxable - this will be professional charges (for the supply of their service) and when they make payments for their clients. They must tax on everything! Almost everything. Including the sale of office chairs for example.
What is the standard VAT?
20%
What is input tax? And in the context of law firms?
Input tax is when a business is taxed by its suppliers. In a law firm, this may be when they get taxed for XYZ.
What is output tax?
A business registered for VAT charges its customers output tax for which it must account to the HMRC.
A firm supplying legal services will be making standard-rated supply, meaning that …
Firms can be taxed and must report their tax to HMRC.
Can you register as a taxable person voluntarily to recover the money lost via output tax?
Yes.
How does tax work?
VAT is chargeable by a taxable person only on taxable supplies made in the course or furtherance of a business carried on by the taxable person.
How do you recover some of that tax from your output tax?
Literally by having output tax (customer/ client pays tax) on the service you’re giving them.
When you are charging someone VAT, what must you do?
You must include VAT in the price OR state fee + VAT (like Costco’s does).
When is tax accounts done?
Quarterly - one month after the end of each quarter that is. Think of the month of May.
Why should you do tax invoices?
It is an evidence of a business’ right to recover their input tax. If they are being supplied by X company, they should a tax invoice of this. When firm also provides service to a taxable person, an invoice should be provided within 30 days after supply.
Can tax actually sometimes be due even before the output tax has been received and thus can be used to deduct the input tax?
Yes. And thus company’s can enter a cashflow issue.
How should VAT and the irrespective professional charges be registered in the client ledger?
In the ledger, VAT and the professional services charge must be entered separately
What are disbursements for VAT purposes?
The law firm does something for the client (such as pay their court fees) and this is NOT part of the service they are actually providing for the client - this was done by the firm purely acting as an agent and not as a service provider.
