VAT and IHT

Question 1

what is VAT charged on?

Answer 1

1. supply of goods or services for consideration in the UK
2. if it is a taxable supply
3. made by a taxable person
4. in the course of business

Question 2

who is a taxable person?

Answer 2

an entity registered for VAT = individuals, partners, companies, unincorporated organisations

Question 3

what is the VAT standard rate?

Answer 3

20%

Question 4

if not stated, is the price of a good or service inclusive or exclusive of VAT?

Answer 4

price deemed inclusive of VAT

Question 5

how is VAT calculated if a price is exclusive vs inclusive of VAT?

Answer 5

• inclusive = VAT is price x 1/6
• exclusive = VAT is price x 20%

Question 6

what is offsetting of VAT?

Answer 6

a VAT registered entity can offset the input tax it paid on goods and services it purchased against the output tax charged on good or services it sold = and pays the difference to HMRC

Question 7

what is output tax vs input tax?

Answer 7

• output tax = VAT charged on good or services that an entity sold
• input tax = VAT paid on goods and services it purchased

Question 8

what are the 4 types of taxable supply for VAT and what is the VAT rate applicable to them?

Answer 8

1. standard rate = 20% - offsetting is possible
2. reduced rate = 5% for domestic heating and power, mobility aids, car seats, … - offsetting is possible
3. zero rate = 0% for food, sewage and water, blind books, new houses and construction of new houses, public transport, and children clothing - offsetting is possible
4. exempt supply = no VAT charge and no offsetting possible - for providing education, health services, insurance, finance AND sale of land excluding new commercial buildings

Question 9

when does an entity register for VAT (thus charge VAT)?

Answer 9

• obliged to register = if the value of its taxable supply is above £85,000
• can voluntarily register otherwise

Question 10

what are the benefits and downsides of voluntarily registering for VAT?

Answer 10

• benefits = input tax can be recovered and offset against output tax
• downsides = charging output VAT means prices of business may increase which could be less attractive to customers + must account to HMRC

Question 11

how does a VAT registered entity account to HMRC? (2)

Answer 11

1. VAT invoice = sent within 30 days of supply to another registered entity + keep a copy
2. VAT return = submit online to HMRC every 3 months within 1 month of the end of the VAT period (showing total output less input tax)

Question 12

what is business property relief for inheritance tax?

Answer 12

if a person owned a qualifying business asset for a qualifying period of time, the inheritance tax payable on disposal of that asset may be reduced or exempt (during lifetime or following death)

Question 13

what are the qualifying business assets and what is their relief rate for business property exemption for IHT?

Answer 13

1. unquoted shares in private companies (any amount) = 100% relief
2. quoted shares where taxpayer owns more than 50% = 50% relief
3. interest in a sole tradership or partnership = 100%
4. asset held by taxpayer personally but used for a business that the taxpayer controls = 50% relief

Question 14

what is the qualifying period of time for a taxpayer to have owned a qualifying business asset for them to have the benefit of business property exemption for IHT?

Answer 14

QBA must be owned for 2 consecutive years immediately prior to the relevant transfer

exceptions:
- if QBA is sold and replaced with a new QBA = period treated as continuous
- if taxpayer inherits the QBA after someone’s death = deemed to acquire it from that person’s date of death
- if taxpayer inherits QBA after spouse’s death = deemed to acquire it from the date the spouse originally acquired it