VAT (Recap)

Question 1

VAT is charged on…

Answer 1

the sale of taxable supplies by a taxable person

Question 2

a taxable person is…

Answer 2

a sole trader, partnership, limited company, club or association making taxable supplies

Question 3

what is a taxable supply?

Answer 3

a supply on which output VAT is chargeable and input VAT can be recovered

Question 4

what are the three VAT rates?

Answer 4

standard rate 20%
reduced rate 5%
zero rate 0%

Question 5

is VAT recoverable on zero-rated supplies?

Answer 5

yes

Question 6

where can I find examples of zero rated, exempt and reduced rated supplies?

Answer 6

tax tables

Question 7

three classifications for supplies in relation to VAT?

Answer 7

• outside the scope of VAT
• exempt
• taxable

Question 8

what is exempt from VAT?

Answer 8

lottery tickets and insurance

Question 9

what is zero rated?

Answer 9

solar panels, kids’ clothes

Question 10

what is reduced rated?

Answer 10

domestic utilities, mobility aids for the elderly

Question 11

what is standard rated?

Answer 11

anything not exempt, zero rated or reduced rated

Question 12

what is outside the scope of VAT?

Answer 12

dividends and salaries

Question 13

can you register for VAT when you make exempt/taxable supplies?

Answer 13

exempt = no
zero/reduced/standard rated = yes

Question 14

do you need to charge output VAT on sales when making taxable/exempt supplies?

Answer 14

taxable = yes (adds 0%, 5% or 20% to the price)

exempt = no

Question 15

can i reclaim input VAT on purchases of exempt/taxable supplies?

Answer 15

exempt = no
taxable = yes

Question 16

link between VAT and sustainability?

Answer 16

solar panels are zero rated

to promote use of renewable energy sources

Question 17

what is output VAT?

Answer 17

VAT collected by a VAT taxable person on sales and paid over to HMRC

Question 18

what is input VAT?

Answer 18

VAT paid by a taxable person on purchases and can be reclaimed from HMRC

Question 19

compulsory registration?

Answer 19

when certain thresholds are met, the business must register for VAT

Question 20

two tests for compulsory registration?

Answer 20

turnover tests which test turnover by either looking backwards or forwards

• historic test
• future prospects test

Question 21

historic test for compulsory registration?

Answer 21

do taxable supplies in previous 12 months exceed limit?

Question 22

future prospects test for compulsory registration?

Answer 22

will taxable supplies in next 30 days alone exceed the limit?

Question 23

how do turnover tests work?

Answer 23

historic and future prospects tests both refer to the annual registration limit

historic test also considers the deregistration limit

Question 24

annual registration limit?

Answer 24

90,000 in 24/25

85,000 beforehand

Question 25

annual deregistration limit?

Answer 25

88,000 in 24/25 83,000 beforehand

Question 26

how frequently are historic and future prospects tests performed?

Answer 26

historic test = performed monthly future prospects = considered constantly

Question 27

what are the historic and future prospects tests?

Answer 27

historic = at end of the month, trader looks back 12 months to see if total taxable supplies exceed registration limit future prospects = trader looks forward and sees in next 30 days alone, taxable supplies will exceed registration limit

Question 28

how does notification work for historic and future prospects test?

Answer 28

historic = notify within 30 days of month in which turnover limit is exceeded future prospects = by end of 30-day period (starting on date trader becomes aware threshold will be exceeded)

Question 29

when does VAT start being charged for historic and future prospects tests?

Answer 29

historic = from first day after end of the month following the month in which threshold was exceeded future prospects = immediately from start of 30-day period that trader is aware threshold will be exceeded

Question 30

when does one NOT have to register for VAT due to historic test?

Answer 30

if taxable supplies for next month aren't expected to be less than the deregistration limit if the business only makes zero-rated supplies

Question 31

when does one NOT have to register for VAT due to future prospects test?

Answer 31

if they only make zero-rated supplies

Question 32

if a business only makes zero-rated supplies, what happens?

Answer 32

they do not have to register for VAT

Question 33

taxable supplies?

Answer 33

all sales excluding - VAT - exempt supplies - supplies outside VAT scope - sales of capital assets

Question 34

does sale of capital assets class as a taxable supply?

Answer 34

no

Question 35

tax point?

Answer 35

the date on which VAT becomes due on a particular transaction VAT must be included on the VAT return in which the date falls

Question 36

how is the tax point decided?

Answer 36

- identify the basic tax point (BPT) - if there is an override, this is the actual tax point

Question 37

basic tax point for supply of goods?

Answer 37

date removed / dispatched

Question 38

basic tax point for supply of services?

Answer 38

date performed

Question 39

basic tax point for goods on sale?

Answer 39

earlier of: - date goods adopted by customer - 12 months after date of dispatch

Question 40

actual tax point?

Answer 40

replaces basic tax point in certain circumstances - if invoice is issued before BTP use ATP - if payment is received before BTP use ATP - if invoice has been issued within 14 days after the BTP use ATP

Question 41

how does fuel work for VAT purposes?

Answer 41

when a business pays for fuel used by an employee/owner for both business and private use, it can recover all input VAT in respect of the fuel output VAT is then charged at a scale rate based on the CO2 rating of the car (to compensate for the VAT reclaimed on the fuel used privately)

Question 42

is VAT chargeable for electric cars?

Answer 42

no

Question 43

how do bad debts work for VAT?

Answer 43

VAT is accounted for according to the tax point (often invoice date) if sale becomes a bad debt, seller has paid output VAT to HMRC but never recovers this from the customer the seller can reclaim output VAT on bad debts from HMRC as input VAT if: - debt is at least 6 months overdue - debt has been written off in seller's books

Question 44

conditions for VAT on bad debts to be reclaimable?

Answer 44

- debt is at least 6 months overdue - debt has been written off in seller's books

Question 45

can VAT be recovered on pre-registration goods/services?

Answer 45

yes if: - goods were acquired for business purposes and not sold prior to registration - goods are acquired less than 4yrs before registration - services are supplied for business purposes - services were supplied less than 6 months before registration

Question 46

irrecoverable input VAT?

Answer 46

input VAT on following goods cannot be recovered: - cars (unless 100% for business use) - non-business items - VAT items for which no VAT receipt is held - business entertaining

Question 47

is input VAT on business entertaining recoverable or irrecoverable?

Answer 47

irrecoverable, unless: - STAFF entertaining - entertaining FOREIGN customers