CTA VAT 14 - 18

Question 1

Conditions for bad debt relief are:

Answer 1

1. They have supplied goods/services and have accounted for and paid the output tax
2. The whole or part of the consideration has been written off in their account as bad debt
3. The value of the supply being written off is not more than normal selling price
4. The debt is at least six months old (6 months have passed since the LATER of supply and the due date for payment).

Question 2

HMRC assessments must be made by the LATER of:

Answer 2

*Two years after the end of the prescribed accounting period in question

*One year after evidence justifying the raising of an assessment comes to light

**One year rule is subject to the four-year cap which is increased to 20 years if the underpayment was deliberate

Question 3

Potential lost revenue is the error or, in the cases of tax point errors…

Answer 3

5% per annum of the delayed tax

Question 4

How do you amend an error to HMRC if it was NOT DELIBERATE?

Answer 4

Net errors not exceeding the greater of:

1. £10,000 or
2. 1% of turnover (subject to upper limit of £50,000)

It can be adjusted via the VAT return.

*Form 652 should be used to disclose the error to HMRC

Question 5

How to deal with an error that was made deliberately?

Answer 5

HMRC’s VAT Error Correction team must be notified of the error online or by post.

The person will suffer a penalty.

Look at whether it was deliberate but not concealed (70%) or

deliberate and concealed (100%).

Interest will also be charged by HMRC on the underpayment of VAT

Question 6

When a trader is late notifying HMRC that they should have been VAT registered, what three things happen?

Answer 6

1. Their registration is backdated to the date from which they were liable to be registered
2. They must account for output tax on their supplies from the date on which they should have been registered*
3. They are liable to a penalty

*Supplies are treated as VAT inclusive

Question 7

The failure to notify penalty is reduced by…

Answer 7

any other penalties arising on the same tax liability

Question 8

How does the late filing penalty system work?

Answer 8

Penalty point awarded for first quarterly late VAT return.

Another point for each subsequent one.

After 4 points, financial penalty of £200.

Each subsequent failure = another £200 but no more points.

Question 9

What happens once a taxpayer has 4 penalty points?

Answer 9

They reset to 0 when four VAT returns are in on time and all VAT returns for last two years have been submitted.

Question 10

Individual penalty points expire after ?

Answer 10

2 years (provided max threshold not reached)

Question 11

When must penalties be paid by?

Answer 11

30 days

Question 12

Late payment of VAT penalties:

1. within 15 days
2. between 16-30 days
3. 30 days
4. 31 days or more

Answer 12

1. no penalty
2. 2% penalty of outstanding amount at day 15
3. further 2% penalty of outstanding amount at day 30
4. further 4% penalty per annum (Calculated daily) of the amount outstanding