6. Value Added Tax Flashcards

1
Q

What is VAT charged on?

A

Any supply of goods or services made in the UK, unless exempt, which is made by a taxable person whilst carrying on business

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2
Q

The supply of what six things is exempt from VAT?

A
  1. Land
  2. Insurance
  3. Financial services
  4. Education
  5. Health services
  6. Postal services
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3
Q

The supply of what five things is zero-rated from a VAT perspective?

A
  1. Food (other than in catering context)
  2. Books/newspapers
  3. Water/sewer services
  4. Transport
  5. Residential construction
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4
Q

The supply of what three things is taxed at a reduced VAT rate of 5%?

A
  1. Domestic fuel
  2. Installation of energy-saving materials
  3. Child car seats
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5
Q

When must a business compulsorily register for VAT?

A

If its gross income excluding exempt goods will in any 12-month period exceed the VAT threshold which is currently £85,000

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6
Q

What are the two ways to test if gross income will exceed the VAT threshold?

A
  1. Historic test
  2. Future test
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7
Q

What does the historic test look at and how soon must registration occur after passing the threshold with this method?

A

Taxable sales in the preceding 12 months, on a rolling basis.

HMRC must be notified with 30 days.

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8
Q

What does the future test look at and how soon must registration occur after passing the threshold with this method?

A

Taxable sales in the next 30 days alone.

HMRC must be notified before the relevant 30-day period expires.

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9
Q

Who is not able to voluntarily register for VAT?

A

Someone who only supplies exempt items or services

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10
Q

When may a business voluntarily deregister for VAT?

A

If taxable turnover falls below £83,000 for a 12-month period

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11
Q

Who may opt to charge VAT even though it would normally be exempt?

A

Owners of interests in commercial land and building who are leasing out the premises

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12
Q

Where tax on an interest in commercial land or buildings is opted for, who might this be a problem for?

A

Tenants who wholly or partially make exempt supplies, as they will not be able to recover input tax on their lease

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13
Q

What type of property does the option to tax not apply to?

A

Residential

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14
Q

What two things must be distinguished from exempt land which an owner may opt to charge VAT?

A
  1. Supply (i.e. construction) of new commercial building (taxed at 20%, not exempt)
  2. Sale of a commercial building less than three years old (taxed at 20%, not exempt)
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15
Q

Within what time limit can someone who opts to charge VAT change their mind, such that HMRC will revoke the option as if it had never been exercised?

A

Six months, as long as it hasn’t been put into practice

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16
Q

If the option to tax has been put into practice, after what amount of time can it be revoked with the consent of HMRC?

A

20 years

17
Q

When must a registered business account for VAT?

A

One month after the end of each VAT quarter

18
Q

What determines the accounting period within which a supply of goods or services will fall?

A

The tax point (time of supply)

19
Q

What is the default tax point for goods?

A

The time the goods are removed, or the time they are made available to the person to whom they are supplied

20
Q

What is the default tax point for services?

A

When the service is performed

21
Q

What are two situations in which the tax point will be altered?

A
  1. If supplier issues VAT invoice or receives payment before the goods are delivered or made available, the tax point becomes that invoice or payment date
  2. If a VAT invoice is issued within 14 days after the default tax point, the invoice date becomes the new tax point
22
Q

What happens if input tax exceeds output tax?

A

HMRC will issue a rebate

23
Q

What are two things on which the VAT cannot be reclaimed?

A
  1. Cars
  2. Business entertaining
24
Q

What is a quick way to calculate the VAT from a VAT-inclusive figure at (1) the standard rate, and (2) the reduced rate, and why is this the case?

A

Standard rate: Divide the VAT-inclusive amount by 6 (x + 20% VAT = 6/5*x)
Reduced rate: Divide the VAT-inclusive amount by 21 (x + 5% VAT = 21/20x)