VAT Flashcards
(13 cards)
what is a taxable supply?
a taxable supply is:
o Any business activity involving the supply of goods/services in the UK
o Made for consideration
o By a taxable person
o Not exempt under VAT legislation
what are the types of supplies? Explain them.
o Standard-rated supply = 20% + business can reclaim input VAT
o Zero-rated supply = 0% + business can reclaim input VAT
o Exempt supply = no VAT charged so the business cannot reclaim input tax
what is the difference between a zero-rated supply and exempt supply?
zero-rated + exempt supply mean no VAT is charged, but zero-rated allows the business to reclaim input VAT
what is input and output tax?
o VAT charged on the sale = output tax
o VAT seller paid on costs = input tax
explain VAT on the sale of a residential property
- Sale of new build by developer is zero-rated
- Sale between private individuals is not in the course of business so VAT not payable.
explain VAT on the sale of a commercial property
what is VAT charged on?
Exempt, unless (then standard rate applies):
o It is a ‘new’ property (i.e. less than 3 years old); or
o It is an ‘old’ property and the seller has opted to tax
Any VAT will be charged on the purchase price
explain VAT on the grant of a lease
what is VAT payable on?
Exempt from VAT unless LL opts to tax. If so, VAT is payable on:
o Any premium (= sum paid for the lease) +
o Rent reserved (= rent agreed in the lease)
i.e. premium £100k + rent £15k. T would need to pay:
£100k premium + 20% VAT = £120k + £3k VAT on rent reserved = £123k
explain VAT on assignment
what is VAT payable on?
if assignor opts to tax assignee pays VAT on:
o Any premium (so long as not being transferred as a going concern)
explain what the option to tax is
a business chooses to charge VAT
NB: so not an option in relation to a private sale between individuals.
why might a seller opt to tax?
seller would opt to tax to recover input tax they have already spent i.e. on construction, renovation, professional fees
what is the effect on the seller if they opt to tax?
o They charge VAT to the buyer (output tax)
o Recover VAT they spent earlier (input tax)
o Only pay the net difference to HMRC, putting them in a VAT-neutral position
o If the seller does not opt to tax, they absorb the input tax
what is the effect on the buyer if they opt to tax?
the buyer can recover the VAT unless they are a VAT sensitive buyer
a VAT-sensitive buyer should seek a reduction to the PP if seller opts to tax
what is a VAT-sensitive buyer?
VAT-sensitive buyer = makes exempt supplies only (i.e. insurance or financial supplies) and so cannot recover VAT
