VAT Flashcards
Which goods and services are subject to VAT?
Exempt services: the supply of land, insurance, financial services, education, health and postal services
Outside scope: sales of shares and businesses
Zero-rated: food, books and newspapers, water and sewerage services, transport, residential construction
5% rated: domestic fuel, installation of energy-saving materials, child car seats
When must someone register for VAT?
Historic test: if turnover in preceding 12 months exceeds the registration of £85,000
Must register for VAT within 30 days of the threshold being exceeded and VAT must start to be charged from the first day of the month after registration
Future test: if taxable sales in next 30 days will exceed £85,000, then HMRC must be notified before the period expires. VAT must be charged from the date trader was AWARE that threshold would be crossed
When can someone de-register for VAT?
If it’s turnover falls below £83,000 for a 12-month period
What is the option to tax?
Owners of commercial land and buildings can opt to charge VAT at 20%. Applies to the individual land or building.
If the landowner then purchases a new building, it will itself be subject to 20% VAT
Does not apply to residential land
Can option to tax be revoked?
Yes, within 6 months if not yet exercised, or after 20 years
Which land transactions are subject to 20% VAT?
- Contract for construction of a commercial building - 20% tax
- Sale of a commercial building less than 3 years old
What is the tax point for VAT
Date of delivery of good = basic tax point
In cases where the payment is made and the invoice is issued before the good or service is supplied, the tax point is the earlier of the payment or invoice date
If a VAT invoice is issued within 14 days of the basic tax point, the invoice date is the new tax point.
How often is VAT paid?
Quarterly
What are input and output tax?
Output tax = tax business charges on its goods and services
Input tax = tax business pays for goods and services it uses
Subtract input tax from output tax. If the number is negative, HMRC will issue a rebate
What can VAT be reclaimed on?
- The business proportion of an item (if used in both personal and professional life)
- Not on cars
- Not on business entertaining
Who can claim VAT?
Everyone but exempt suppliers
How to calculate VAT
if VAT is included in figure: X 1/6 (or 1/21 for 5% transactions)
if VAT is excluded: x 20% or x 5%
