VAT Flashcards
(40 cards)
Name the two distinct aspect of VAT.
1) Input tax; and
2) Output tax.
Briefly define output tax.
Output tax is VAT charged by a business to its customers.
Briefly define input tax.
Input tax is the VAT charged by a business to its supplies.
What is the definition of VAT (VATA 1994 s4(1))?
VAT is chargeable on the supply of goods or services where the supply is a taxable supply and is made by a taxable person in the course or furtherance of a business carried on by the taxable person.
The person making the supply must account for the tax charged to HMRC.
What is the supply of goods for the purposes of VAT?
All forms of supply whereby the whole property in goods is transferred, including a gift of goods.
What is the supply of services for the purposes of VAT?
Anything which is not a supply of goods by is done for consideration.
Define taxable supply for the purposes of VAT.
Any goods or services other than an exempt supply.
Name the two types of taxable supply.
- Those which are chargeable at zero rate;
- Those which are chargeable at the standard rate (20%).
What is a zero rates supply?
supplies which are chargeable at the zero rate (0%). These include supplies of:
1) Water;
2) Insurance;
3) Some postal services
4) Finance;
5) Health services; and
6) Burial and cremation.
What is the reduced rate of VAT and name some supplies it relates t?
The reduced rate is 5% and it applies to things like domestic fuel, stop smoking products, installation of energy saving materials etc.
What is the difference between zero rated and exempt supplies?
- They are both supplies where no output VAT is charged.
- However, zero rated supplies means the business making these supplies can still recover input tax from their supplier. This is not the case on standard rated supplies.
Do law firms make standard rated supplies?
Yes (other than when providing insurance services).
Define taxable person.
- A person is a taxable person if they are required to be registered under the VATA 1994.
- A person must register if, the value of taxable supplies in the prior 12 months exceeded the figure specified in that years budget (85k for 23/24).
- Voluntary registration is also permitted, and someone may wish to do this so they can recover input tax.
Define business for the purposes of VAT.
In the course of business means a supply made in the course of any trade, business, profession or vocation (but other things can also fall within this definition).
Explain input tax.
Where a taxable person charges VAT on the supply of their goods or services for the purposes of their business, they are entitled to claim back any VAT charges to them (from their supplier) from the amount of output tax which they account for to HMRC.
Is a taxable person making an exempt supply entitled to claim input tax?
No.
What is the procedure for claiming input tax in situations where the taxable person makes both taxable and exempt supplies?
They can recover a proportion of input tax charged to them according to the supply that they make.
How should solicitors quote their fees?
This should be the fee plus VAT. That way the VAT is expressed to be excluded from the price. This is important as if it is not specified, the VAT would come out of the fee, resulting in the firm receiving less money.
Explain the general rule of the taxable point.
1) Goods - time of supply is when the goods are removed or made available to the purchaser;
2) Services - when the services are completed.
Explain when the taxable point is varied.
a) If within 124 days of the basic tax point, supplier issues a tax invoice, the date of the invoice will become the tax point unless a longer peruse has been agreed with HMRC. For solicitors there is a general extension of the 14 day period to 3 months. Provided a solicitor delivers their bill within 3 months of completion of their services, the date of each bill will be the tax point.
b) If, before a bail cast point arises, the supplier issues a VAT tax invoice or received q payment, the supply will be treated as taking place at the date of the invoice or payment, to the extent covered by the invoice or payment.
How long does a taxable person making a taxable supply to another taxable person have to provide them with a tax invoice?
It has to be provided within the 30 days after the time of supply.
List the information a tax invoice should include.
(a) an identifying number;
(b) the date of the supply, ie the tax point;
(c) the supplier’s name, address and VAT registration number;
(d) the name and address of the person to whom the supply is made;
(e) the type of supply, eg sale, loan, hire;
(f) the description of the goods or services supplied;
(g) the quantity of goods or the extent of the services and the amount (excluding VAT)
payable for each description;
(h) the total amount payable (excluding VAT);
(i) the rate of cash discount; and
(j) the rate and amount of tax charged.
What is the general formula for calculating the amount of taxation payable to HMRC?
- Total output tax charged less deductible inout tax.
- This is contained within the company’s statutory VAT account, a count required to be kept by every taxable person.
If a company provides supplies at the zero rate, but paid input tax of 2k, is this still recoverable?
Yes - the company will be able to claim £2,000 from HMRC for the input tax incurred, even though they have not charged any VAT (ie charged at the zero rate).
