Corporate Taxation - Intro to VAT

Question 1

When is VAT chargeable?

Answer 1

VAT is charged on:
- Any supply of goods or services
- Made in the UK
- Where it is a taxable supply
- By a taxable person
- In the course of furtherance of business

Question 2

What is a taxable person for VAT purposes?

Answer 2

A person who is, or is required to be, registered for VAT, including individuals, companies, partnerships, and unincorporated organisation

Question 3

What is a taxable business?

Answer 3

A person registered or required to register for VAT - whether by obligation or voluntarily

Question 4

When must a person register for VAT?

Answer 4

• If taxable supplies exceed £90k in any 12 month period
• If the person expects taxable supplies to exceed the threshold in the next 30 days

Question 5

What is the current VAT deregistration threshold?

Answer 5

£88k

Question 6

What is the advantage of voluntary VAT registration?

Answer 6

Enables a business to recover input VAT, but also means it must charge output VAT on its supplies

Question 7

What is output tax?

Answer 7

VAT charged on a business’s own sales of goods or services

Question 8

What is input tax?

Answer 8

VAT paid by the business on purchases of goods or services

Question 9

How does a VAT registered business calculate the VAT it owes to HMRC?

Answer 9

Output VAT(charged to customers) - Input VAT (paid to suppliers) = amount payable to or reclaimable from HMRC

Question 10

What is standard VAT rate?

Answer 10

20%

Question 11

If a price is VAT-inclusive, how is the VAT element calculated?

Answer 11

Multiply the price by the VAT fraction, currently 1/6, to isolate the VAT element

Question 12

In a supply chain, how is VAT collected by HMRC?

Answer 12

At each stage, businesses charge output VAT and recover input VAT. HMRC received the net VAT at each link in the chain

Question 13

What are the 4 types of VAT supplies?

Answer 13

1. Standard Rate - 20%
2. Reduced Rate - 5%
3. Zero Rated 0%
4. Exempt

Question 14

When can input VAT be recoverd?

Answer 14

When it is incurred in making taxable supplies (standard, reduced, or zero rated) It cannot be recovered if it relates to exempt supplies

Question 15

What is the deadline for issuing VAT invoice to another business?

Answer 15

Within 30 days of making a supply

Question 16

How often must VAT returns be submitted?

Answer 16

Quarterly, with payment due within 1 month and 7 days after the end of the VAT period

Question 17

How does HMRC treat businesses that pay over £2.3m in VAT annually?

Answer 17

They must make monthly payments on account and pay the balance with the quarterly return

Question 18

What is the cash accounting scheme?

Answer 18

Businesses with turnover under £1.35m may account for VAT on payment (not invoice). Input Tax is only reclaimable once paid

Question 19

What is the annual accounting scheme?

Answer 19

Businesses with turnover under £1.35m may submit 1 annual VAT return and make instalment payments during the year.

Question 20

What is the flat rate scheme?

Answer 20

Businesses with taxable turnover under £150k may charge VAT at a flat rate depending on the business type. Input tax cannot be normally reclaimed

Question 21

What is the flat rate for ‘limited cost traders’

Answer 21

16.5 gross turnover

Question 22

Example of reduced rate supplies?

Answer 22

• Domestic heating and power
• Children’s car seats
• Smoking cessation products

Question 23

Example of zero rated supplies?

Answer 23

• Food
• Books and newspapers
• Children’s clothing
• Public transport

Question 24

Example of exempt supplies?

Answer 24

• Education, health, finance, insurance
• Sale of land and buildings