VAT Flashcards
(37 cards)
How much is the reduced VAT percentage and what are some of the products that attract this rate?
The reduced rate of VAT is 5% and this rate can be used for fuel and services installing energy saving material.
What are example of exempt supplies?
Sales of old commercial buildings, rent of buildings, financial services, insurance and postal and health services.
What is the difference between zero rated and exempt supplies?
With zero rated supplies you can register for VAT and recover the input VAT that was generated on purchases. With exempt supplies, you cannot recover the VAT.
What 3 items are outside of the scope of VAT?
Dividends, salaries and transfer of going concern.
When must a VAT return be filed.
A VAT return must be filed 1 month and 7 days after the end of the VAT period. March21, June21, September21 December21 = 07/05/21, 07/08/21, 07/11/21 and 07/02/22.
With regards to VAT registration, what is the historic test?
The historic test is where you must register for VAT if you produce taxable supplies in the last 12 months are more than £85,000. You must perform the test every month. Once you have crossed the threshold you must notify HMRC within 30 days.
With regards to VAT registration. what is the future test?
Where you expect taxable supplies to be more than £85,000 in next 30 days you must register. You have 30 days to notify HMRC and you must start charging VAT immediately.
What is an advantage of voluntarily registering for VAT?
You can reclaim the input VAT that you suffered on the purchase of supplies and you can appear more professional to customers if you are VAT registered.
What are the disadvantages of registering for VAT?
You have to charge customers more to account for VAT and the customer cannot recover the VAT if they are not VAT registered. There is also increased administration, which could lead to increased costs for your business. There are also risks of fines and penalties if errors or late filings of your VAT return take place.
What are the circumstances where a person would deregister compulsorily and voluntarily from VAT?
A person would compulsorily deregister from VAT if they they stopped making taxable supplies. A person would voluntarily deregister from VAT if their taxable supplies over the next year fall below £83k.
How does an election for group VAT work?
It is an election and not automatic and not all eligible companies need to be included.
What does a resident or non resident company need to be a part of a VAT group?
It needs to have a UK permanent establishment.
What is the VAT treatment for goods that are sold from the UK to America?
As America is outside of the UK the goods should be treated as Zero rated goods. (recover input VAT on VAT return).
What is the VAT treatment of goods purchased from America and imported into the UK?
HMRC will hold the goods at the point of entry. Input VAT will be paid on the value of the imported goods. The input VAT will be deductible on the next VAT return.
What are the two scenarios that take place if goods are sold from the UK to an EU country?
If the UK supplier has a VAT number of EU recipient and has evidence of goods delivered to another EU state then the goods are treated as ZERO rated.
If the UK supplier does not have VAT number for the EU recipient or does not have evidence that the goods have been delivered to another EU state, then charge local VAT (UK VAT), this is known as distance selling.
What is the VAT treatment with regards to buying EU good from the UK?
It is up to the UK purchaser to deal with the VAT. The output VAT must be accounted for at the point of acquisition. The UK company then charges itself input VAT and recovers the output VAT, which will offset itself on the return.
What are the aspects of the cash accounting scheme?
Turnover should not exceed £1,350,000 over 12 months.
VAT can be accounted for on the basis of cash paid and received rather than using tax points.
What are the advantages of the cash accounting scheme?
Cashflow is advantage of the cash accounting scheme because output VAT only has to be paid to HMRC when the cash has actually been received from the customer.
It also gives automatic bad debt relief i.e. if a customer does not pay you then you do not have to wait for a period of time to collect output VAT to HMRC, because you never received it.
What are the aspects of the annual accounting scheme?
Taxable turnover should not exceed £1,350,000.
Only one annual return due within 2 months of year end.
Payment of 90% of the previous years VAT liability is due in 9 equal instalments at the end of month 4 to 12. Also the balance due with the return.
What are the advantages of the annual accounting scheme?
Less frequent return submissions, so less likelihood of default.
Ability to manage cashflow more accurately.
Avoids quarterly calculations for partial exemption purposes and input VAT recovery.
What are the disadvantages of the annual accounting scheme?
Need to monitor future taxable supplies to check that limit is not exceeded.
Timing of payment has less correlation to turnover.
Payments based on prior year may not reflect current years cashflow.
Cant be used by a company in a group VAT registration.
What are the aspects of the flat rate accounting scheme?
Taxable turnover must not exceed £150,000.
The VAT due is equal to a flat % x Total turnover.
1% reduction in your first year of VAT registration.
There is no recovery of input VAT.
However VAT at 20% should still be treated normally.
What are the benefits of the flat rate scheme?
Simplifies the VAT process for small businesses.
What is the partial exemption with regards to VAT?
This is where a person makes a mixture of taxable and exempt supplies so that their goods are partially exempt. This means that all of their input tax is not recoverable because some of their supplies are exempt.
