Indirect taxes Flashcards
(34 cards)
Single supply
Multiple separate elements of
the supply but with one principal element
Other elements are
ancillary to the principal element
The VAT treatment of the principal element
will apply to the whole supply
Multiple supplies
Different elements of the
supply which are separate and clearly identifiable
They have been invoiced together at an
inclusive price for all items
No one item is considered the principal element – there is a clear intention to buy two distinct goods / services
There are multiple supplies for VAT purposes
and each item will have VAT charged at the
appropriate rate based on the type of good / service
VAT groups conditions
Companies under common control must be either
- Established in the UK
- Have a permanent
establishment in the UK
VAT group pros
No VAT charged on intra-group supplies
Only one VAT return is required
Group can pick and choose which companies to include in the group
A small wholly exempt company in the group may recover its input
tax under the de minimis partial exemption rules
VAT group cons
All companies are jointly and severally
liable for the group’s VAT
Admin problems caused by producing one return
Bringing in a (partially) exempt company may restrict input tax
Partial exemption
If a trader makes both taxable and exempt supplies, they may not be able to recover
all input VAT suffered
Categories of input VAT for partially exempt trade
VAT directly attributable to taxable supplies
VAT directly attributable to exempt supplies
Un-attributable VAT
De-minimis tests
All input VAT is fully recoverable if any of the tests are satisfied
Applied quarterly and again at the end of the VAT year to determine if
an annual adjustment is needed (if VAT has been over or under-paid)
Simplified de-minimis test 1
Input tax under £625 per month on average AND
Exempt supplies less than 50% of total value of supplies
Simplified de-minimis test 2
Input tax less input tax directly attributable to taxable supplies is less than £625 per month on average AND
Exempt supplies less than 50% of total value of supplies
Standard de-minimis test
Input tax relating to exempt supplies is no more than £625 per month on average AND
No more than 50% of total input tax
Recoverable VAT if none of the de-minimis tests are satisfied
The Input VAT related to taxable supplies
A proportion of the un-attributable input VAT
(taxable turnover / total turnover) x 100%
Annual test
A trader can treat themselves as de-minimis for the whole VAT year and only apply the de
minimis tests at the end of the year if…
They were de-minimis in the prior VAT year (based on the above tests)
They expect input VAT for the current VAT year to be under £1m
VAT on property
Sale of new residential buildings = Zero-rated
Sale of commercial buildings under three years old - Standard-rated
Other transactions are exempt, unless there has been an option to tax
Option to tax
Can be applied to otherwise exempt supplies of commercial land and buildings
VAT registered owner can ‘opt to tax’ and waive the exemption and charge
standard rate VAT on all future supplies of the land / building
The option has a 6 month cooling-off period, but is then only revocable after 20 years with HMRC agreement
Opting to tax pros
Allows the owner to potentially increase recovery of input VAT suffered on the building through the capital goods scheme
Allows the owner to recover input VAT on other building related expenses
Opting to tax cons
Tenants / buyers may not be able to recover the
VAT that they will now be charged
Stamp duty land tax will be higher for any purchaser
Capital goods scheme
Allows HMRC to ensure the correct amount of VAT is claimed where taxable use changes over time
Applies to the VAT exclusive cost of
- Land and buildings over £250k
- Single computer items, aircraft, ships, boats and other vessels over £50k
Input VAT recovery period
10 years for land and buildings
5 years for other assets
First period input VAT recovery amount
Input VAT x % taxable use
Annual adjustment of input VAT recovery amount
(1/N) × Input VAT × (current % taxable use - original % taxable use)
N = 10 years for L/B, 5 for other assets
Adjustment of input VAT recovery amount after sale of asset
Normal annual adjustment AND
Adjustment on sale
= (P/N) × Input VAT × (R – original % taxable use)
P = VAT periods remaining after original 5 or 10
R = 0% if sale exempt or 100% if sale taxable
Flat rate scheme - limited cost traders
Allows traders to calculate net VAT due to HMRC by applying 16.5% rate to their VAT-inclusive turnover, rather than accounting for it on individual sales and purchases
Limited cost trader business qualification requirements
The amount spent on relevant goods inclusive of VAT is either:
– less than 2% of VAT inclusive turnover
– greater than 2% of VAT inclusive turnover but less than £1k per year
Relevant goods = goods used exclusively for the business, not capital expenditure or the supply of services
Decided each time a VAT return is completed
