VAT : OUTLINE
Taxation (TX)
SEED FINANCIAL ACADEMY
VAT
- VAT Registration Compulsory Threshold
If a person’s taxable supplies exceed the registration threshold, then registration
is compulsory
-Historic Turnover Test : If cumulative total of taxable supplies for last 12 months or
since commencing, whichever is shorter exceed GBP 85,000.
Notify HMRC within 30 days of the end of the month by completing VAT1 form.
Registration is effective from 1st day of 2nd month.
No need to register if taxable supplies for next 12 months are expected to be
below GBP 83,000.
No need to register if all supplies are zero rated.
SEED FINANCIAL ACADEMY
VAT
Future prospect Test : Considered at any time if taxable supplies in next 30 days in
isolation are expected to exceed GBP 85,000.
Notify before end of the 30 days.
Registration effective from the beginning of the 30 day period.
SEED FINANCIAL ACADEMY
VAT
- VAT Registration - Voluntary
A person can make voluntary registration if he is or intends to make taxable
supplies.
Advantages : avoid penalties for late registration, can recover input VAT, can
disguise the small size of business.
Disadvantages : burden of VAT compliance, when charged VAT supplies will be
more expensive for unregistered business or person.
Beneficial if business is making zero rated supplies but can recover input VAT and
supplies to VAT registered.
Not beneficial if all customers are non-VAT registered.
SEED FINANCIAL ACADEMY
VAT
- Accepting New Business
Status of the customers is very important in deciding whether or not additional
business is beneficial as more taxable supplies means compulsory registration.
If Customers are VAT registered, they can recover the VAT so it will be
advantageous.
If Customers are not VAT registered, they cannot recover and if selling price cannot
be increased, VAT becomes additional cost to business , so may be beneficial not to
accept.
SEED FINANCIAL ACADEMY
VAT
- VAT Groups
Companies under common control can elect for group VAT.
One VAT submission for all group companies.
Intragroup supplies disregarded for VAT purpose.
All companies jointly and severely liable.
Advantages : intragroup VAT eliminated, one VAT submission will save admin costs.
Disadvantages : all members jointly liable, single return may cause admin
difficulties.
SEED FINANCIAL ACADEMY
VAT
- Recovery of Pre-Registration input VAT
Goods : 4 years prior to registration. Goods have not been sold or consumed prior
to registration, should still be in inventory.
Services : 6 months prior to registration, must have been supplied for business
purpose.
SEED FINANCIAL ACADEMY
VAT
- Deregistration
Must deregister when ceases to make taxable supplies,
Notify within 30 days.
Cancelled from the date of cessation.
Voluntarily deregister if taxable supplies in next 12 months expected to not exceed
GBP 83,000
VAT registration cancelled from the date or request or agreed later date. Output
VAT for supplied and assets must be accounted for which input VAT has been
claimed.
Waived off if final tax liability is GBP 1,000 or less.
SEED FINANCIAL ACADEMY
VAT
- VAT on Sale of Business
Compulsory de-registration unless the business is transferred as going concern.
If not going concern, charged output VAT on assets transferred.
Conditions of going concern :
-No significant break in trading.
-Same type of trade is carried after
-New owner already is or liable to register for VAT.
If both parties make joint election , VAT registration can be transferred. The
transferee assumes all rights and obligations.
SEED FINANCIAL ACADEMY
VAT
- Tax Point – Basic
Goods : When they are collected , delivered or made available to customers
Services : When they are performed.
Basic Tax point (BTP) may be over ridden by Actual Tax Point (ATP)
SEED FINANCIAL ACADEMY
VAT
SEED FINANCIAL ACADEMY
VAT
- Tax Point – Special Rules
Goods on sale or return : time of supply is earlier of the date when goods are
adopted by customer or 12 months after dispatch date.
Continuous Supplies : example electricity or tax advice .
Time of supply is earlier of invoice being issued or payment received.
Sales under hire Purchase : interest charged is exempt. Goods are taxed as
normal.
SEED FINANCIAL ACADEMY
VAT
- Value of Supply- Discounts
In both cases trade discounts and Prompt Payment discounts , VAT is charged on the
price paid by customer.
For Prompt Payment discounts,
Charge full price on sale and issue a credit note or
show full details of terms of the prompt payment and can only recover input tax
based on amount paid. Then if discount is taken, adjust the records to account for
output tax.
SEED FINANCIAL ACADEMY
VAT
- Value of Supply- Goods for Own use
If trader withdraws , input can be recovered and output VAT must be accounted for
on the replacement value.
- Value of Supply- Gifts
Gift of inventory or NCA are taxable supplies at replacement cost, except
-Goods costing GBP 50 or less excluding VAT to the same person in a 12 month
period.
-Business samples
-Gift of services are not taxable supplies
SEED FINANCIAL ACADEMY
VAT
- Irrecoverable Input VAT
-Not recoverable on Business entertaining , entertaining suppliers and UK
Customers. VAT on staff entertaining and overseas customers is recoverable.
-Motor car unless they are use 100% for business purpose.
- leased cars can recover 50% of input VAT if car has private use.
-Business can however recover all input VAT on running costs of car even if there is
some private use.
SEED FINANCIAL ACADEMY
VAT
- Motor Expenses - Reimbursement
If a business pays for fuel costs for an employee, sole trader or partner and if
there is some private use, VAT charge will be payable. Scale charge will be given.
SEED FINANCIAL ACADEMY
VAT
- Relief for impairment losses
- Can be claimed by adding VAT element of irrecoverable debt to input tax.
-Conditions:
- 6 months has passed from the time the payment was due or the date of supply if
later.
-Claims made within 4 years and 6 months of the payment being due.
SEED FINANCIAL ACADEMY