VAT

Question 1

What is VAT charged on?

Answer 1

• any supply of goods or services made in the UK
• where it is a taxable supply
• made by a taxable person
• in the course of furtherance of any business carried on by that person

Question 2

What is the supply of goods or services?

Answer 2

Any supply made in the UK of goods or services done in return for consideration

Question 3

What is made in the UK?

Answer 3

The place of supply of the relevant goods or services must be in the UK

Question 4

What is a taxable supply?

Answer 4

Any supply made in the UK which is not an exempt supply

Question 5

What is a taxable person?

Answer 5

A person who is, or is required to be, registered for VAT purposes - includes individuals, partners, companies and unincorporated organisations

Question 6

What is in the course or furtherance of any business carried on by them?

Answer 6

Basically any economic activity carried on, on a regular basis

Question 7

When must a person be VAT registered?

Answer 7

• if at the end of any month the value of their taxable supplies in the period of one year or less has exceeded the VAT registration threshold

Or

• at any time there is reasonable grounds for believing that the value of their taxable supplies in a period of 30 days then beginning will exceed the VAT registration threshold

Question 8

What is the current VAT threshold?

Answer 8

£90,000

Question 9

If a person is required to be VAT registered because at the end of any month the value of their taxable supplies in the period of one year or less has exceeded the VAT registration threshold, when must the person notify HMRC and when will they be registered?

Answer 9

They must notify HMRC within 30 days

They will be registered from the beginning of the second month after taxable supplies went over the threshold

Question 10

If a person is required to be VAT registered because at any time there is reasonable grounds for believing that the value of their taxable supplies in a period of 30 days then beginning will exceed the VAT registration threshold, when must the person notify HMRC and when will they be registered?

Answer 10

• must notify HMRC within 30 days
• they will be registered from the beginning of the 30-day period

Question 11

Can a person voluntarily register to be VAT registered?

Answer 11

Yes

Question 12

What advantage is there in being VAT registered?

Answer 12

Input VAT can be recovered

Question 13

What disadvantage is there in being VAT registered?

Answer 13

Output VAT will need to be charged on supplies of goods and services

Question 14

When can a person apply to have their VAT registration cancelled?

Answer 14

Where the value of their future annual taxable supplies will not exceed the VAT deregistration threshold - currently £88,000

Question 15

What is output tax?

Answer 15

The tax chargeable by a business when making a supply of goods or services is called output tax. The VAT relates to the output of the business

Question 16

What is input tax?

Answer 16

The VAT paid by a person on goods or services supplied to the person is called input tax. The VAT relates to goods and services bought in by the person

Question 17

What VAT is paid to HMRC?

Answer 17

Tax to HMRC = output tax charged to customers less input tax suffered by business

Only difference goes to HMRC

Question 18

If there is no output tax in any VAT accounting period, can it be used in future?

Answer 18

Yes, possible to reclaim any input tax incurred where it is intended future output tax will be charged

Question 19

What is the standard rate of VAT?

Answer 19

20%

Question 20

What presumption arises in relation to VAT and prices?

Answer 20

Price is deemed to be VAT inclusive unless the contract otherwise states

Question 21

How can the VAT element of the total price be calculated?

Answer 21

By multiplying the purchase price by 1/6

Question 22

What are the four potential types of supply at business can make?

Answer 22

• standard rated
• reduced rated
• zero rated
• exempt

Question 23

What things are charged at the reduced rate?

Answer 23

• domestic heating and power
• installation of mobility aids for the elderly
• smoking cessation products
• children’s car seats

Question 24

What kind of things are zero rated?

Answer 24

• Some food
• sewage and water
• books/newspapers
• talking books for the blind
• new houses and construction of new houses
• public transport
• children’s clothing

Question 25

What is the practical difference between zero rated and exempt supply?

Answer 25

- zero rated still charges VAT just at zero rate on output so can still recover any VAT suffered on input - exempt supply means no VAT can be recovered as to VAT suffered on input

Question 26

What kind of things are exempt from VAT?

Answer 26

- provision of insurance - finance - education/health services - sale of land and buildings (unless new commercial building or suppler of commercial building chooses to make supply standard rated by waiving exemption)

Question 27

How are businesses to account their VAT to HMRC?

Answer 27

Registered businesses are required to keep VAT records and make their VAT return online

Question 28

If a taxable business is making a standard or reduced rate supply of goods or services to another taxable business, what must they do?

Answer 28

They must supply the customer/client with a VAT invoice within 30 days of the supply and keep a copy

Question 29

How often must taxable businesses submit a VAT return?

Answer 29

Every three months to HMRC

Question 30

When is VAT payment due to HMRC?

Answer 30

Within one month and seven days after the end of the VAT period

Question 31

What must the VAT return show?

Answer 31

The total output tax charged on the making of taxable supplies during the VAT period less the total input tax attributable to the making of taxable supplies

Question 32

If a business normally pays more than £2.3 million a year to HMRC in VAT, when must they make their VAT payments?

Answer 32

They must make monthly payments of account and pay balance when submitting the quarterly VAT return

Question 33

Why does retail have a special VAT scheme?

Answer 33

For retailers who find it difficult to issue VAT invoices for the large number of supplies that they make direct to the public

Question 34

What is the cash accounting VAT scheme?

Answer 34

Where a business has an annual turnover of less than £1,350,000 (excluding VAT and exempt supply) they may opt to use a cash accounting scheme if certain conditions are met

Question 35

What is the annual accounting scheme?

Answer 35

Where a business has an annual turnover of less than £1,350,000 (excluding VAT and exempt supply) they may be permitted by HMRC to make an annual VAT return. The return is paid in instalments during the year with the balance being paid when the VAT return is submitted

Question 36

What is the flat rate scheme?

Answer 36

Where a VAT registered business has a taxable an annual turnover of not exceeding £150,000 (excluding VAT) and a total annual turnover (ie to include VAT charged to the business and the value of any exempt and other non-taxable income) not exceeding £230,000, the business may elect that VAT be charged at a flat rate on turnover rather than on every single transaction