CTA VAT 10-13

Question 1

What conditions need to be satisfied before input tax is available for credit?

Answer 1

1. Supply goods/services
2. Taxable person
3. Business purposes
4. Required evidence that input tax incurred (VAT invoice)
5. Restricted to amount properly chargeable
6. Goods / services purchased must have a direct and immediate link with taxable supplies

Question 2

Blocked input tax on:

Answer 2

Business entertaining

Motor cars

Question 3

Staff entertainment is not blocked for input tax UNLESS :

Answer 3

1. Only for directors, partners etc
2. Employees act as hosts to non employees

Question 4

When is entertaining of overseas customers deductible?

Answer 4

When necessarily incurred for a STRICT BUSINESS PURPOSE and is reasonable in scale and character

Question 5

Input tax on car for only business use

On car for shared private and business use

On leasing a car for shared private and business use

Answer 5

Allowed

Blocked

50% recovered on the lease charges

Question 6

Partially exempt traders initially allocate input tax as:

Answer 6

1. Direct taxable
2. Direct exempt
3. Residual

*residual is apportioned using the standard method or a special method

Question 7

The standard methods (quarterly calculations) are:

Answer 7

1. Values based
2. prior year %
3. usage based

*these are provisional recoveries

Question 8

Values based apportionment for residual input tax is :

Answer 8

Taxable supplies (exc VAT) / Total supplies (exc VAT) x 100% x Residual input tax

*the % is rounded up to nearest whole % before x by residual input tax

Question 9

When can use based % be used?

Answer 9

During registration period / first tax year / any tax year if no input tax relating to exempt in prior year

Use financial forecasts

Question 10

What does the prior year % method do?

Answer 10

Use prior year residual % so no need to do use based or values based calculation each quarter.

Question 11

Annual adjustment = final calculation at end of year

Any variance is accounted for ….

Answer 11

1. on first VAT return of next year OR
2. on last VAT return for current year (if chosen to do so)

Question 12

Is it possible to reclaim input VAT relating to exempt supplies?

If so, what amounts?

Answer 12

Yes, if the amounts are below a certain limit (de minimis input VAT)

£625 per month
£1,875 per quarter
£7,500 per year

Question 13

The normal de minimis test is done after residual apportionment. If it is met, all input tax can be recovered.

What is the normal test?

Answer 13

Total exempt input tax (directly attributable to exempt plus proportion of residual) must be:

1. less than or equal to £625 per month on average AND
2. not more than 50% of total input tax

Question 14

What are the two simplified de minimis tests?

Answer 14

1. If total input tax incurred is no more than £625 per month on average and value of exempt supplies no more than 50% of value of all supplies
2. total input tax incurred less input tax directly attributable to taxable supplies is no more than £625 per month on average and value of exempt supplies no more than 50% of value of all supplies

Question 15

What records does HMRC require traders to keep?

How long should they be kept for?

Answer 15

1. Business accounting records
2. Copies of VAT invoices issued and received
3. Credit and debit notes
4. VAT account showing all output tax and input tax movements during the VAT period

*kept for minimum of 6 years

Question 16

The VAT invoice is a crucial document.

Simplified invoices can be issued where…

Retailer invoices can be issued where …

Answer 16

1. Consideration does not exceed £250
2. Supplier is a retailer and the value of the supply inc VAT is not more than £250

Question 17

VAT return is due when?

Payment of VAT is due when?

Answer 17

One month and 7 days following end of quarter (ie a 31 March return would be 7 May).

Same date. Get three days extra if direct debit

Question 18

How does the annual accounting scheme work?

Answer 18

Allows small and medium businesses to pay VAT on an annual basis.

There is one annual return to be made two months after the VAT year end.

When the VAT return is submitted, the balance of VAT actually due is paid at the same time.

Question 19

Advantages of annual accounting scheme?

Answer 19

1. Less admin
2. VAT penalties less likely
3. Cash flow more certain

Question 20

Conditions for joining annual accounting scheme ?

Answer 20

1. Turnover of taxable supplies in next 12 months under £1.35 million
2. Not in VAT group
3. No outstanding VAT debt
4. Is not insolvent

5.Ceased to use annual accounting in last 12 months

Question 21

What is the cash accounting scheme?

Answer 21

Output VAT accounted for on date cash is received from customer

Input VAT accounted for when cash is paid to supplier

Question 22

Advantages of cash accounting scheme

Answer 22

1. Easier to identify tax point
2. Helps cash flow
3. Automatic bad debt relief

Question 23

Conditions for joining cash accounting scheme

Answer 23

1. Turnover of taxable supplies in next 12 months under £1.35 million
2. All VAT returns up to date and VAT paid
3. No convictions of VAT offences
4. No penalties for dishonest conduct in last 12 months
5. HMRC have not withdrawn permission in last 12 months or denied access to scheme

Question 24

Conditions for leaving annual accounting scheme (x2)

Answer 24

1. Annual turnover taxable supplies is / is expected to be over £1.6 million
2. Becomes insolvent / ceases to trade

Question 25

Conditions for leaving cash accounting scheme

Answer 25

Turnover in last 12 months more than 1.6 million