tax chapter 12 Flashcards
What is a VAT return
VAT period or tax period
- normally 3 month period
- 1 month VAT period here input tax exceeds output tax
- a small business may submit
How is VAT return submitted
to HMRC through an online system not later than 7 days after last of the month following the end of the return period
What is a substantial trader
taxable persons annual VAT liability excess of £2.3m
payments due end of 2nd and 3rd months of the quarter
amount is 1/24 of total VAT liability of previous year
how often do businesses submit VAT returns and what are the conditions
small businesses
once every 12 months –>due within 2 months of year-end
conditions;
value of taxable supply in the following year not greater than £1.35m
pay 9 monthly equal instalments 1/10 of previous years VAT liability or current years estimated liability if registered less than 12 months OR
3 quarterly payment of 25% of previous years VAT liability or this year if registered less than 12 months
what can be used alongside the annual accounting scheme
flat rate scheme or cash accounting scheme
what is the cash accounting scheme
allows a business to account for VAT on the basis of cash paid and received, then invoices received and issued
what are the main advantages of the cash accounting scheme
output VAT not accounted for until payment received
the automatic bad debt relief (since no output VAT is payable if payment isn’t received)
BUT input VAT cant be received until business actually paid the supplier for purchases
what are the cash accounting scheme conditions
small businesses join if taxable supplies value in next year not greater than £1.35m
once joined can continue until taxable supplies in the last 12 months are greater than £1.6m
businesses submitted all VAT returns to date and paid all outstanding VAT
not been convicted of a VAT offence or penalty in last 12 months
what is the flat rate scheme
businesses to calculate net VAT without having to account for VAT on individual sales and purchases but apply a flat rate percentage to VAT inclusive turnover
what are the conditions of the flat rate scheme
business join if the value of taxable suppliers doesn’t exceed £150000
total annual income in excess of 230000 must leave the flat rate scheme. Including exempt income
what are the advantages of flat rate scheme
admin-no records of input VAT need be kept
Frequently less VAT payable to HMRC than under normal rules
what are the main records kept of VAT
purchase invoices cash book order and delivery notes purchase and sales day book records of daily takings bank statement and paying in slips annual accounts
what does a VAT invoice contain
unique identification number business name and address and contact information name and address of the customer clear description of goods or service date of invoice and tax point if different any discount offered amount charged excluding VAT total VAT charged
