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Lecture 8- VAT

Deleted user 44 questions Updated 12 Jul 2021

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1VAT (Value Added Tax)- An [blank_start]indirect[blank_end] or [blank_start]expenditure[blank_end] tax borne by [blank_start]final[blank_end] consumer, charged whenever taxable person makes taxable [blank_start]supply[blank_end] of goods or services in course of his or her [blank_start]business[blank_end]
1. Aindirect
2. Bexpenditure
3. Cfinal
4. Dsupply
5. Ebusiness
2Person who has to [blank_start]administer[blank_end] & [blank_start]submit[blank_end] tax to government is not person that [blank_start]suffers[blank_end] VAT because person has to [blank_start]account[blank_end] for & [blank_start]submit[blank_end] VAT to [blank_start]HMRC[blank_end] which is registered business
1. Aadminister
2. Bsubmit
3. Csuffers
4. Daccount
5. EHMRC
6. Fsubmit
3VAT works by each registered [blank_start]business[blank_end] or [blank_start]trader[blank_end] deducting VAT [blank_start]suffered[blank_end] from VAT [blank_start]received[blank_end] & pays [blank_start]net[blank_end] amount across to HMRC. VAT received in all its sales is known as [blank_start]output[blank_end] tax. VAT suffered on its purchases is known as [blank_start]input[blank_end] tax
1. Abusiness
2. Btrader
3. Csuffered
4. Dreceived
5. Enet
6. Foutput
7. Ginput
4VAT is charged at [blank_start]each[blank_end] stage of [blank_start]production[blank_end] & is borne by [blank_start]final[blank_end] consumer
1. Aeach
2. Bproduction
3. Cfinal
5There is no distinction between [blank_start]capital[blank_end] & [blank_start]revenue[blank_end] expenditure for VAT. Therefore, if business buys [blank_start]new[blank_end] equipment & incurs VAT on cost of equipment, it is part of business's [blank_start]input[blank_end] tax. If business sells non-current assets, VAT would be charged on [blank_start]sales[blank_end] of those assets
1. Acapital
2. Brevenue
3. Cnew
4. Dinput
5. Esales
6Items that are outside scope of VAT include payment of [blank_start]wages[blank_end] & [blank_start]dividends[blank_end]
1. Awages
2. Bdividends
7VAT is charged when taxable person ([blank_start]individual[blank_end], [blank_start]partner[blank_end], [blank_start]company[blank_end], [blank_start]charity[blank_end] or [blank_start]club[blank_end]/[blank_start]society[blank_end]) makes taxable supply (any supply of [blank_start]goods[blank_end] or [blank_start]services[blank_end] in UK unless specifically exempt) of goods or services in course of [blank_start]business[blank_end] (supply for consideration)
1. Aindividual
2. Bpartner
3. Ccompany
4. Dcharity
5. Eclub
6. Fsociety
7. Ggoods
8. Hservices
9. Ibusiness
8Rates of VAT include [blank_start]standard (20%)[blank_end], [blank_start]reduced (5%)[blank_end] & [blank_start]zero rated (0%)[blank_end]
1. Astandard (20%)
2. Breduced (5%)
3. Czero rated (0%)
9VAT is charged when there is supply of [blank_start]goods[blank_end]. This occurs when [blank_start]ownership[blank_end] passes for consideration. Also includes [blank_start]gifts[blank_end] of business assets (small amounts) & goods taken permanently for [blank_start]private[blank_end] use by owner
1. Agoods
2. Bownership
3. Cgifts
4. Dprivate
10VAT is also charged when there is supply of [blank_start]services[blank_end]. This is any supply for consideration that is not supply of [blank_start]goods[blank_end]. This includes temporary [blank_start]private[blank_end] use of goods owned by [blank_start]business[blank_end] or [blank_start]private[blank_end] use of [blank_start]services[blank_end] supplied to business
1. Aservices
2. Bgoods
3. Cprivate
4. Dbusiness
5. Eprivate
6. Fservices

11Everything is taxable supply at [blank_start]20%[blank_end] unless it is specifically included in list of [blank_start]zero rated[blank_end] supplies or [blank_start]reduced rate[blank_end] supplies or supply that is specifically [blank_start]exempt[blank_end]
1. A20%
2. Bzero rated
3. Creduced rate
4. Dexempt
12Exempt supplies are totally [blank_start]outside[blank_end] VAT. For exempt supplies, supplier cannot [blank_start]register[blank_end] & cannot [blank_start]reclaim[blank_end] VAT suffered. Examples include [blank_start]insurance[blank_end], [blank_start]betting[blank_end]/[blank_start]gaming[blank_end]/[blank_start]lotteries[blank_end], [blank_start]financial services[blank_end] & [blank_start]education[blank_end]
1. Aoutside
2. Bregister
3. Creclaim
4. Dinsurance
5. Ebetting
6. Fgaming
7. Glotteries
8. Hfinancial services
9. Ieducation
13For zero rated supplies [blank_start]businesses[blank_end] only making these supplies can [blank_start]register[blank_end] for VAT. Business will be charging VAT on [blank_start]sales[blank_end] at 0%. It will be treated as [blank_start]registered[blank_end] business & will be able to [blank_start]reclaim[blank_end] VAT on its purchases. Examples include [blank_start]food[blank_end] (except [blank_start]luxury food[blank_end]), [blank_start]books[blank_end]/[blank_start]newspapers[blank_end]/[blank_start]journals[blank_end], [blank_start]children’s clothes[blank_end] & [blank_start]passenger transport[blank_end] ([blank_start]10+ passengers[blank_end])
1. Abusinesses
2. Bregister
3. Csales
4. Dregistered
5. Ereclaim
6. Ffood
7. Gluxury food
8. Hbooks
9. Inewspapers
10. Jjournals
11. Kchildren’s clothes
12. Lpassenger transport
13. M10+ passengers
14Reduced rate supplies- [blank_start]5%[blank_end] otherwise as for [blank_start]standard[blank_end] rated supplies. Examples include [blank_start]fuel[blank_end] & [blank_start]power[blank_end] for [blank_start]domestic use[blank_end], [blank_start]installation[blank_end] of [blank_start]mobility aids[blank_end] for elderly, children’s [blank_start]car seats[blank_end], smoking [blank_start]cessation products[blank_end]
1. A5%
2. Bstandard
3. Cfuel
4. Dpower
5. Edomestic use
6. Finstallation
7. Gmobility aids
8. Hcar seats
9. Icessation products
15Value of supply- [blank_start]Amount[blank_end] on which [blank_start]VAT charge[blank_end] is based ([blank_start]net[blank_end] amount)
1. AAmount
2. BVAT charge
3. Cnet
16Consideration given for supply- [blank_start]Total value[blank_end] of supply plus [blank_start]VAT[blank_end] ([blank_start]gross[blank_end] amount)
1. ATotal value
2. BVAT
3. Cgross
17Value of VAT (of supply) for [blank_start]gifts[blank_end] of business assets, or items taken out of business [blank_start]permanently[blank_end] for private use, is [blank_start]normal[blank_end] price for which it would have been [blank_start]sold[blank_end]
1. Agifts
2. Bpermanently
3. Cnormal
4. Dsold
18Value of VAT (of supply) for goods taken [blank_start]temporarily[blank_end] for private use is [blank_start]depreciation[blank_end] of asset whilst in [blank_start]private[blank_end] use
1. Atemporarily
2. Bdepreciation
3. Cprivate
19Value of VAT (of supply) for private use of services is appropriate [blank_start]proportion[blank_end] of services [blank_start]supplied[blank_end]
1. Aproportion
2. Bsupplied
20Value of VAT (of supply) for items where [blank_start]consideration[blank_end] was not for cash or items sold for [blank_start]less[blank_end] than market value to connected party is [blank_start]market value[blank_end]
1. Aconsideration
2. Bless
3. Cmarket value
21Trade Discount

Trade discount- Discount given before [blank_start]sale[blank_end] takes place, & therefore [blank_start]invoiced[blank_end] amount, & VAT calculation, is [blank_start]after[blank_end] deducting this discount
1. Asale
2. Binvoiced
3. Cafter
22Early settlement discount- VAT is to be [blank_start]charged[blank_end] on amount that [blank_start]customer[blank_end] pays. Invoice will show value of sale before [blank_start]discount[blank_end]. VAT is shown as follows: (1) if business expects customer takes up [blank_start]discount[blank_end], discounted [blank_start]price[blank_end] will be shown, & VAT is calculated on [blank_start]discounted[blank_end] price, (2) if customer takes [blank_start]discount[blank_end], pays on time, that's [blank_start]end[blank_end] of it, (3) if customer does not take [blank_start]discount[blank_end] new invoice will be prepared to [blank_start]increase[blank_end] sale & to account for additional VAT, (4) if business does not expect customer to take up [blank_start]discount[blank_end], full price will be shown, with VAT on [blank_start]full[blank_end] price, (5) if customer does not pay within [blank_start]early settlement[blank_end] time, that's end of it & finally (6) if customer does take up [blank_start]discount[blank_end], & credit note will be issued
1. Acharged
2. Bcustomer
3. Cdiscount
4. Ddiscount
5. Eprice
6. Fdiscounted
7. Gdiscount
8. Hend
9. Idiscount
10. Jincrease
11. Kdiscount
12. Lfull
13. Mearly settlement
14. Ndiscount
23Tax point (date of supply) is used to determine [blank_start]rates[blank_end] & [blank_start]tax periods[blank_end]. Basic tax point is when goods are [blank_start]removed[blank_end] or made [blank_start]available[blank_end] to customer, or [blank_start]date[blank_end] on which services are completed. One certain exemption is [blank_start]basic[blank_end] tax point can be replaced by [blank_start]actual[blank_end] tax point which may be before/after [blank_start]basic[blank_end] tax point. Another is payment received before [blank_start]basic[blank_end] tax point then [blank_start]actual[blank_end] tax point is date of [blank_start]payment[blank_end]. Third is invoice issued before [blank_start]basic[blank_end] tax point then [blank_start]actual[blank_end] tax point is date of [blank_start]invoice[blank_end]. Finally, invoice issued within [blank_start]14[blank_end] days after basic tax point then actual tax point is date of [blank_start]invoice[blank_end]. Therefore, [blank_start]actual[blank_end] tax point cannot be later than date on which payment is actually [blank_start]received[blank_end]
1. Arates
2. Btax periods
3. Cremoved
4. Davailable
5. Edate
6. Fbasic
7. Gactual
8. Hbasic
9. Ibasic
10. Jactual
11. Kpayment
12. Lbasic
13. Mactual
14. Ninvoice
15. O14
16. Pinvoice
17. Qactual
18. Rreceived
24Registration for VAT- When supplies in any [blank_start]12[blank_end]-month period exceed [blank_start]£85,000[blank_end] (limit from 1/4/17) person is required to [blank_start]register[blank_end]. Once registered VAT [blank_start]number[blank_end] will be issued & this must be quoted on all future tax [blank_start]invoices[blank_end]. If [blank_start]trader[blank_end] fails to register they are still treated as taxable person & sales treated by [blank_start]HMRC[blank_end] as VAT inclusive. For purpose of determining [blank_start]limit[blank_end] of £85,000, sales of [blank_start]capital[blank_end] assets are ignored in arriving at value of supplies. However, it is total [blank_start]supplies[blank_end] by that individual
1. A12
2. B£85,000
3. Cregister
4. Dnumber
5. Einvoices
6. Ftrader
7. GHMRC
8. Hlimit
9. Icapital
10. Jsupplies
25If someone is in business & their sales are [blank_start]increasing[blank_end], it is important to keep [blank_start]record[blank_end] of monthly rolling [blank_start]12[blank_end] month total of [blank_start]supplies[blank_end] to make sure you have not reached [blank_start]point[blank_end] on which you have got to [blank_start]register[blank_end] & you missed registration [blank_start]deadline[blank_end]
1. Aincreasing
2. Brecord
3. C12
4. Dsupplies
5. Epoint
6. Fregister
7. Gdeadline
26Artificial splitting of businesses- Some traders may try to avoid [blank_start]registration[blank_end] & may try to artificially split their business into [blank_start]small[blank_end] parts to ensure that they keep [blank_start]below[blank_end] limits. [blank_start]HMRC[blank_end] can direct that artificially split businesses is treated as [blank_start]single[blank_end] person for VAT
1. Aregistration
2. Bsmall
3. Cbelow
4. DHMRC
5. Esingle
27Trader is required to [blank_start]register[blank_end] for VAT within [blank_start]30[blank_end] days of exceeding registration [blank_start]limit[blank_end]- registration applies from start of following [blank_start]month[blank_end]. If supplies are going to be > [blank_start]limit[blank_end] in next 30 days, registration applies from start of these [blank_start]30[blank_end] days
1. Aregister
2. B30
3. Climit
4. Dmonth
5. Elimit
6. F30
28Trader may make [blank_start]voluntary[blank_end] registration for VAT to make business seem more [blank_start]prestigious[blank_end]. Also, it may be that business has mostly [blank_start]0 rated[blank_end] supplies (won't be charging VAT but can recover VAT on its [blank_start]inputs[blank_end]. Another reason is [blank_start]customers[blank_end] are VAT registered
1. Avoluntary
2. Bprestigious
3. C0 rated
4. Dinputs
5. Ecustomers
29There are certain exemptions from [blank_start]registration[blank_end] for VAT. Usually, if you are over [blank_start]limit[blank_end] of £85,000, but all sales are [blank_start]zero[blank_end] rated for VAT, [blank_start]HMRC[blank_end] are not missing out from collection of VAT. When you first register for VAT there are certain items of [blank_start]pre-registration input[blank_end] tax which you can recover (this is VAT suffered on [blank_start]purchases[blank_end] which can be [blank_start]reclaimed[blank_end] from HMRC in certain circumstances)
1. Aregistration
2. Blimit
3. Czero
4. DHMRC
5. Epre-registration input
6. Fpurchases
7. Greclaimed
30Pre-registration input tax for goods (VAT suffered on goods [blank_start]purchased[blank_end] in [blank_start]4[blank_end] years prior to registration if they are still [blank_start]owned[blank_end] by trader at date of [blank_start]registration[blank_end]). Pre-registration input tax for services (VAT suffered on services [blank_start]supplied[blank_end] in [blank_start]6[blank_end] months before date of [blank_start]registration[blank_end]
1. Apurchased
2. B4
3. Cowned
4. Dregistration
5. Esupplied
6. F6
7. Gregistration
31You can deregister for VAT if you can show your supplies in next [blank_start]12[blank_end] months is going to be less than [blank_start]£83,000[blank_end]. You have to deregister when you [blank_start]ceased[blank_end] trade & also if there is change in your [blank_start]legal[blank_end] status. On deregistration, if trader does not sell business as [blank_start]going concern[blank_end], they are considered to have made [blank_start]supply[blank_end] of all tangible assets of business, & must account for [blank_start]VAT[blank_end] accordingly. Any assets on which VAT was not claimed can be [blank_start]excluded[blank_end], & VAT in this circumstance is not collected if it is [blank_start]£1,000[blank_end] or less
1. A12
2. B£83,000
3. Cceased
4. Dlegal
5. Egoing concern
6. Fsupply
7. GVAT
8. Hexcluded
9. I£1,000
32Submission of returns for VAT is now done (since 1/4/10) via [blank_start]internet[blank_end]. Generally, return has to be done every [blank_start]3[blank_end] months & is due [blank_start]1[blank_end] month & [blank_start]7[blank_end] days after end of [blank_start]quarter[blank_end]. If output tax > input tax, [blank_start]pay to HMRC[blank_end]. If input tax > output tax, [blank_start]reclaim from HMRC[blank_end]. Businesses with mostly zero rated supplies can reclaim VAT on [blank_start]inputs[blank_end] & for cash flow purposes, it may be beneficial for them to do [blank_start]monthly[blank_end] returns
1. Ainternet
2. B3
3. C1
4. D7
5. Equarter
6. Fpay to HMRC
7. Greclaim from HMRC
8. Hinputs
9. Imonthly
33Tax invoices- Provides documentary [blank_start]evidence[blank_end] of transaction. It has to have full details such as supplier's [blank_start]name[blank_end], [blank_start]address[blank_end] & [blank_start]registration number[blank_end], [blank_start]tax[blank_end] point, invoice [blank_start]number[blank_end], [blank_start]name[blank_end] & [blank_start]address[blank_end] of customer & description of [blank_start]goods[blank_end] or [blank_start]services[blank_end]. Retailers may issue less detailed tax invoice if for less than [blank_start]£250[blank_end]. They must disclose supplier's [blank_start]name[blank_end], [blank_start]address[blank_end] & [blank_start]registration number[blank_end], date of [blank_start]supply[blank_end], description of [blank_start]goods[blank_end] or [blank_start]services[blank_end] supplied, [blank_start]rate[blank_end] of tax & total amount [blank_start]chargeable[blank_end] including VAT
1. Aevidence
2. Bname
3. Caddress
4. Dregistration number
5. Etax
6. Fnumber
7. Gname
8. Haddress
9. Igoods
10. Jservices
11. K£250
12. Lname
13. Maddress
14. Nregistration number
15. Osupply
16. Pgoods
17. Qservices
18. Rrate
19. Schargeable
34Accounting records must be retained for [blank_start]6[blank_end] years & subject to control visits by [blank_start]HMRC[blank_end]
1. A6
2. BHMRC
35One special scheme for VAT is [blank_start]annual accounting[blank_end] scheme (for [blank_start]very small[blank_end] businesses). Instead of doing quarterly returns, they can do one [blank_start]annual accounting[blank_end] return. This can be done if taxable turnover < [blank_start]£1.35m[blank_end]. They have to make [blank_start]electronic[blank_end] payment on account which is either [blank_start]9[blank_end] monthly payments, starting in month [blank_start]4[blank_end] or [blank_start]3[blank_end] payments in months [blank_start]4, 7 & 10.[blank_end] At end of year return they will do [blank_start]return[blank_end] & pay balance [blank_start]2[blank_end] months after year end. They have to withdraw from scheme when turnover exceeds [blank_start]£1.6m[blank_end]
1. Aannual accounting
2. Bvery small
3. Cannual accounting
4. D£1.35m
5. Eelectronic
6. F9
7. G4
8. H3
9. I4, 7 & 10.
10. Jreturn
11. K2
12. L£1.6m
36Another special scheme for VAT is [blank_start]cash accounting[blank_end] scheme. This scheme applies to businesses with turnover < [blank_start]£1.35m[blank_end]. Business will account for [blank_start]output[blank_end] when they receive payments from [blank_start]customers[blank_end] & will be able to reclaim [blank_start]inputs[blank_end] when they pay their invoices. Advantage of this scheme is that it gives [blank_start]automatic[blank_end] relief for bad debts but to join scheme all VAT [blank_start]returns[blank_end] & [blank_start]payments[blank_end] must be up to date, & have no VAT [blank_start]convictions[blank_end]. When turnover > [blank_start]£1.6m[blank_end] in 1 year & they cannot prove that turnover will return to < [blank_start]£1.35m[blank_end] in next year, they will have to leave scheme
1. Acash accounting
2. B£1.35m
3. Coutput
4. Dcustomers
5. Einputs
6. Fautomatic
7. Greturns
8. Hpayments
9. Iconvictions
10. J£1.6m
11. K£1.35m
37Third special scheme for VAT is [blank_start]flat rate[blank_end] scheme (for [blank_start]small[blank_end] businesses). [blank_start]Customers[blank_end] are invoiced in normal way, & invoices received are [blank_start]paid[blank_end] as normal, but VAT due is calculated as [blank_start]flat-rate[blank_end] percentage of turnover. Rates vary from [blank_start]4%[blank_end] to [blank_start]14.5%[blank_end] (depends upon [blank_start]trade sector[blank_end] business is considered to be in). It is much simpler scheme as you just have to pay over VAT of that percentage of your [blank_start]sales[blank_end]. Any capital assets costing [blank_start]£2,000[blank_end] or more accounted for in normal way. This scheme can be used with [blank_start]annual accounting[blank_end] scheme. It is available to small businesses with taxable/total turnover not expected to exceed [blank_start]£150,000[blank_end] in next 12 months. Trader must leave scheme when total turnover exceeds [blank_start]£230,000[blank_end]
1. Aflat rate
2. Bsmall
3. CCustomers
4. Dpaid
5. Eflat-rate
6. F4%
7. G14.5%
8. Htrade sector
9. Isales
10. J£2,000
11. Kannual accounting
12. L£150,000
13. M£230,000
38Unless you are in [blank_start]cash accounting[blank_end] scheme, you have to account for [blank_start]VAT[blank_end] when you issue invoice or basic tax point. Therefore, you would have to pay over [blank_start]VAT[blank_end], may be before you have received [blank_start]money[blank_end] from customer. If that amount becomes [blank_start]bad debt[blank_end], you have paid over output VAT which has never been received. Therefore, you get [blank_start]refund[blank_end] for VAT lost. If consideration was for money & output tax has been accounted for to HMRC, value not more than market value. [blank_start]Bad debt[blank_end] gets written off & was 6 months old & goods are passed to [blank_start]customer[blank_end]
1. Acash accounting
2. BVAT
3. CVAT
4. Dmoney
5. Ebad debt
6. Frefund
7. GBad debt
8. Hcustomer
39There are few items for which you cannot recover input tax (non-deductible) which includes [blank_start]business entertaining[blank_end], [blank_start]motor car[blank_end] unless as [blank_start]inventory[blank_end] or for use [blank_start]exclusively[blank_end] for business & items used [blank_start]partly[blank_end] for business
1. Abusiness entertaining
2. Bmotor car
3. Cinventory
4. Dexclusively
5. Epartly
40Overall responsibility for administration of VAT is within [blank_start]commissioners[blank_end] for HMRC (head office Southend-on-Sea). Local VAT offices are responsible for local [blank_start]administration[blank_end] & advice, and to undertake [blank_start]control[blank_end] visits. They may issue [blank_start]VAT assessments[blank_end] if they believe trader has not made or made incorrect returns
1. Acommissioners
2. Badministration
3. Ccontrol
4. DVAT assessments
41[blank_start]VAT assessments[blank_end] are not normally needed, but will be made if business has not [blank_start]sent[blank_end] in return, or if one is considered to be [blank_start]incomplete[blank_end] or [blank_start]incorrect[blank_end]. Time limit for VAT offices to raise an assessment is [blank_start]4[blank_end] years after end of [blank_start]tax[blank_end] period, but [blank_start]20[blank_end] years if fraud
1. AVAT assessments
2. Bsent
3. Cincomplete
4. Dincorrect
5. E4
6. Ftax
7. G20
42Taxpayer can make an [blank_start]appeal[blank_end] against VAT assessment & have [blank_start]30[blank_end] days to do this or they can go directly to [blank_start]local[blank_end] office to ask them to [blank_start]reconsider[blank_end] their decision
1. Aappeal
2. B30
3. Clocal
4. Dreconsider
43There are various penalties for not [blank_start]complying[blank_end] with VAT regulations which include [blank_start]criminal fraud[blank_end], [blank_start]failure[blank_end] to notify that someone should have [blank_start]registered[blank_end] for VAT, completing [blank_start]incorrect[blank_end] VAT returns, VAT “[blank_start]wrongdoing[blank_end]” & [blank_start]breaches[blank_end] of regulations
1. Acomplying
2. Bcriminal fraud
3. Cfailure
4. Dregistered
5. Eincorrect
6. Fwrongdoing
7. Gbreaches
44Default surcharge- Applies if taxable person submits late [blank_start]VAT return[blank_end] &/or makes late [blank_start]payment[blank_end] of VAT. HMRC then issues “[blank_start]surcharge liability notice[blank_end]” which specifies surcharge period running for [blank_start]12[blank_end] months. If further default occurs during this [blank_start]12[blank_end] month period, original surcharge period is extended to [blank_start]12[blank_end] months from new [blank_start]default[blank_end]. In addition, if [blank_start]default[blank_end] involves late payment of VAT [blank_start]surcharge[blank_end] is levied. [blank_start]Surcharge[blank_end] penalty is charged as percentage of [blank_start]tax[blank_end] paid late
1. AVAT return
2. Bpayment
3. Csurcharge liability notice
4. D12
5. E12
6. F12
7. Gdefault
8. Hdefault
9. Isurcharge
10. JSurcharge
11. Ktax

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Lecture 8- VAT

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