VAT (Special Schemes) Flashcards
(23 cards)
capital goods scheme?
capital goods scheme applies to businesses that spend large sums on certain non-current assets that will be used to make both taxable & exempt supplies
what happens when the capital goods scheme applies?
initial recovery of input VAT is made in the usual way (based on % of taxable use at the time of purchase) and then reviewed over a set adjustment period
this is to stop businesses manipulating their proportion of taxable/exempt supplies in the period of purchase to recover more input VAT
which assets are covered by the capital goods scheme?
- land & buildings costing £250,000+
- aircraft, ships, boats etc costing £50,000+
- single computer items costing 50,000+
the initial proportion of input VAT recoverable is based on…
(for capital goods scheme)
the initial use of the asset
wholly taxable use = can recover all input VAT
wholly exempt use = cannot recover any input VAT
partly taxable use = can recover proportion of input VAT based on proportion of taxable use in quarter of purchase
how is the annual adjustment calculated?
by comparing the proportion of taxable use on the initial recovery to the proportion of taxable use for the current VAT year
what are the adjustment periods for capital goods scheme?
land & buildings = 10yrs
aircraft, ships & boats = 5yrs
computers/pc equipment = 5yrs
first interval runs from date of acquisition to the end of that VAT return year
what happens if taxable use has decreased/increased?
(capital goods scheme)
- if taxable use has decreased, some initial input VAT recovered must be repaid
- if taxable use has increased, more input VAT can be recovered
annual adjustment is:
- total input VAT / adjustment period * (%taxable supplies now - %taxable supplies on initial recovery)
how do adjustment periods work?
as input tax recoverable was recognised on initial purchase, the % of taxable supplies can vary year on year
therefore, adjustments are made annually, and input VAT is recovered/repaid according to the increase/decrease in taxable use
how do adjustments for sale work with the capital goods scheme?
if an asset (which is subject to capital goods scheme) is sold during the adjustment period, the annual adjustment is made as normal in the year of disposal (as if asset had been used for the whole year)
what other adjustments for sale must be made, other than on disposal?
adjustment for sale must be made to cover the remaining intervals within its capital goods scheme life (after disposal, if disposal was made within its life)
adjustments for sale if disposal was exempt and disposal was made during capital goods scheme life?
if disposal was exempt (e.g., sale of old building (3+yrs old) where there’s no OTT) we assume 0% taxable for each of the remaining periods
total input VAT / adjustment period * (0%-%taxable supplies on initial recovery) * remaining years
adjustments for sale if disposal was taxable and disposal was made during capital goods scheme life?
if disposal was taxable (e.g., sale of commercial building over 3yrs old with OTT claimed) we assume 100% taxable use for each remaining period
total input VAT / adjustment period * (100% - %taxable supplies on initial recovery) * remaining years
flat rate scheme?
output VAT due to HMRC is calculated by applying a flat rate % to the gross VAT-inclusive turnover figure (including zero-rated & exempt supplies)
under flat rate scheme, how are VAT invoices issued to customers?
as normal
no input VAT is separately recovered, so no input VAT records need to be kept
what does the flat rate % in flat rate scheme depend on?
varies across the category of business
there’s a 1% deduction if it joins the scheme in its first year of VAT registration
annual taxable turnover limit to join the flat rate scheme?
150,000 (excluding VAT and exempt supplies)
if annual total income exceeds 230,000, a business must leave the scheme
main advantages of the flat rate scheme?
lower admin burden (e.g., no input VAT records are required)
possibly pay less admin than under normal VAT rules
how does flat rate scheme differ for limit cost businesses?
if a business qualifies as a limit cost business, then VAT will be calculated as 16.5% rather than % based on business category
what is the disadvantage of using the flat rate scheme as a limited cost business?
16.5% is the flat rate, regardless of the type of business
this potentially removes the main advantage of the flat rate scheme, and increases the possibility of paying more VAT than would have had VAT been calculated using normal method
what is classed as a limited cost business?
one with VAT inclusive cost of relevant goods of:
- less than 2% of its VAT inclusive turnover
- greater than 2% of VAT-inclusive turnover but less than 1,000 per year or 250 per quarter
‘relevant goods’?
goods that are exclusively used for business purposes (other than capital items)
how often must a business consider whether or not they are a limited cost business?
each time a VAT return is completed
therefore, if they are no longer a limited cost business in a particular VAT period, they don’t need to apply the 16.5%
what are the 2 special schemes?
- capital goods scheme
- flat rate scheme
