Seminar 10 - Self-Study Topic VAT

Question 1

what is the period covered by VAT referred to as?

Answer 1

VAT period or Tax period

Question 2

normally, how long is the VAT period?

Answer 2

3 months

Question 3

in what instance will HMRC allow someone to have a 1 month VAT period?

Answer 3

if their input tax exceeds their output tax

(they’re in a net repayment position)

Question 4

who can submit an annual VAT return?

Answer 4

small businesses can submit an annual VAT return

(one VAT return per year)

Question 5

how must all VAT registered businesses submit their VAT returns?

Answer 5

online

returns must be submitted electronically

Question 6

when must VAT returns be submitted?

Answer 6

must be submitted 7 days after the last day of the month following the end of the return period

(e.g., return date is 01/07, must be submitted 07/09)

Question 7

if payment is made by direct debit, when is it collected?

Answer 7

if payment is made by direct debit, its automatically collected a further 3 days after the due date

Question 8

who are ‘substantial traders’?

Answer 8

taxable persons with over £2.3 million VAT liability

Question 9

when must substantial traders make payments?

Answer 9

on account for each quarter electronically

payments are due at the end of the second & third months of the quarter

the amount of each payment is 1/24 of the total VAT liability for the previous year

the balancing payment for the quarter is due with the VAT return at the end of the month following the end of the quarter

Question 10

what are annual accounting schemes?

Answer 10

scheme whereby the VAT return is due within 12 months of the end of the year

helps small businesses reduce admin work and submit only 1 VAT return per year

Question 11

under what condition can a business join the annual accounting scheme?

Answer 11

if their taxable turnover/expected taxable turnover doesn’t exceed £1.35 million

businesses already in the annual accounting scheme can continue until the value of their taxable supplies in the previous 12 months exceeds £1.6 million

Question 11

how does the annual accounting scheme require traders to make payments on account?

Answer 11

either as 9 interim payments throughout the year

or 3 quarterly payments throughout the year

the traders must then pay any outstanding VAT or receive refunds for overpaid VAT, after the end of the year

in total, trader will either make 10 or 4 payments on account

Question 11

if the trader makes 9 monthly payments…

Answer 11

each payment will be electronic

each payment will be 10% of total VAT liability for the previous year or 10% of the estimated VAT liability for the current year (if the trader has been registered for less than 12 months)

the first payment is due at the end of the 4th month, and every month after that

Question 12

if the trader makes 3 quarterly payments…

Answer 12

each payment must be electronic

each payment must be 25% of the previous year’s VAT liability or 25% of the estimated liability for the current period (if the traders been registered for less than 12 months)

payments are due by the end of the 4th, 7th and 10th month of the annual accounting year

Question 13

what are the main advantages of the annual accounting scheme?

Answer 13

the reduction in the number of VAT returns required

2 months to complete the annual return and make the balancing payment

Question 14

can the annual accounting scheme be used in conjunction with the cash accounting scheme and/or the flat rate scheme?

Answer 14

yes

Question 15

under what condition can a business join the cash accounting scheme?

Answer 15

if taxable turnover in the following year isn’t expected to exceed £1.35 million

the business must have submitted all its VAT returns to date and paid all outstanding VAT

business mustn’t have been convicted of a VAT offence/penalty in the previous 12 months

Question 16

under what condition can businesses continue under the cash accounting scheme?

Answer 16

can continue until their taxable turnover in the previous 12 months exceeds £1.6 million

Question 17

what are the main advantages of the cash accounting scheme?

Answer 17

output VAT doesn’t have to be accounted for until payment is received from customers

automatic bad debt relief since no output VAT is payable if payment isn’t received

Question 18

disadvantage with the cash accounting scheme?

Answer 18

no input VAT can be recovered until the business has actually paid the supplier for the purchase

Question 19

how does the flat rate scheme work?

Answer 19

a flat rate percentage is set by the type of business carried on:

4% for food retailers
14.5% for building & construction services
14.5% for accountancy services
16.5% fixed percentage for limited cost traders

Question 20

how is VAT payable to HMRC at the end of the VAT period calculated?

Answer 20

flat rate % x the VAT-inclusive turnover for the period

Question 21

is there a deduction for input VAT with the flat rate scheme?

Answer 21

no

Question 22

what does the VAT inclusive turnover include?

Answer 22

taxable supplies, exempt supplies and supplies of capital assets

Question 23

under what condition can a business join the flat rate scheme?

Answer 23

if their taxable turnover doesn’t exceed £150,000

Question 24

what are the main advantages of the flat rate scheme?

Answer 24

reduction in the burden of preparing VAT returns as no records of input VAT need to be kept

frequently less VAT payable to HMRC than under the normal rules

Question 25

when must a business leave the flat rate scheme?

Answer 25

if total annual income exceeds £230,000 (including exempt income)

Question 26

what does HMRC require all taxable persons to do regarding their output & input VAT?

Answer 26

keep adequate record of all transactions to support output VAT charged and input VAT recoverable

Question 27

what are the main sources of keeping track of transactions?

Answer 27

invoices

credit/order/delivery notes

tills

cash book

bank statements/financial statements

Question 28

what is the purpose of the VAT invoice?

Answer 28

the key record to support claim to recover input VAT

must be issued when a taxable person makes a taxable supply to another taxable person

Question 29

what must VAT invoices include?

Answer 29

unique identification number

name, address & contact info

goods/services description

discount offered

date of invoice/tax point

price/quantity/rate of VAT for each item

Question 30

must a trader issue a VAT invoice for every transaction?

Answer 30

yes

Question 31

simplified VAT invoice = ?

Answer 31

a less detailed invoice can be issued for supplies under £250

Question 32

modified VAT invoice = ?

Answer 32

can be issued for retail supplies over £250