BLP WORKSHOP 7

• What does VAT stand for?

  Value Added Tax
• What is the primary purpose of VAT?

  To tax the value added at each stage of production or distribution
• What is the difference between input VAT and output VAT?

  Input VAT is paid on purchases, while output VAT is charged on sales
• What is the VAT registration threshold?

  The current registration threshold is £90,000
• When must a person notify HMRC about exceeding the VAT registration threshold?

  Within 30 days of the end of the month when the threshold was exceeded
• What happens if a VAT registered person’s future taxable supplies will not exceed the deregistration threshold?

  They may apply to have their registration cancelled
• What is the current deregistration threshold?

  The current deregistration threshold is £88,000
• How does a VAT registered business account for input and output tax?

  It offsets input tax against output tax and pays the difference to HMRC
• What is the standard rate of VAT?

  The standard rate of VAT is currently 20%
• How is the VAT element calculated from a VAT inclusive price?

  Multiply the price by the VAT fraction, which is currently $\frac{1}{6}$
• If a tree is sold for £200 + VAT, how much VAT is charged?

  £40
• If a timber merchant sells planks for £400 + VAT, how much VAT is charged?

  £80
• If a furniture manufacturer sells desks for £800 + VAT, how much VAT is charged?

  £160
• If a furniture supplier sells desks for £1,000 + VAT, how much VAT is charged?

  £200
• What are the four types of supply in VAT?

  Standard Rated, Reduced Rated, Zero Rated, Exempt
• What is the VAT rate for reduced rated supplies?

  The VAT rate for reduced rated supplies is 5%
• What are zero rated supplies?

  Supplies charged at a VAT rate of 0% for public policy reasons
• What happens to input tax for exempt supplies?

  Input tax attributable to exempt supplies is not recoverable
• What must a taxable business provide when making a standard or reduced rate supply?

  A VAT invoice within 30 days of the supply
• How often must taxable businesses submit a VAT Return?

  Every three months
• What is the due date for submitting a VAT Return?

  Usually within one month and seven days after the end of the VAT period
• What is the purpose of special schemes in VAT accounting?

  To simplify accounting for VAT or to reduce VAT liability
• What are the types of special schemes available for VAT accounting?

  • Retail Schemes
  • Cash Accounting
  • Annual Accounting
  • Flat Rate Scheme
• What is the flat rate scheme for VAT?

  A scheme where VAT is charged at a flat rate on turnover rather than on every single transaction
• What is the anti-avoidance rule for limited cost traders using the flat rate scheme?

  They must account for VAT at a rate of 16.5%
• What are the key points summarized about VAT?

  • VAT is charged on taxable supplies made in the UK.
  • Registration is required if taxable supplies exceed thresholds.
  • Businesses charge output tax and pay input tax.
  • VAT rates depend on the type of supply.
  • Prices are deemed inclusive of VAT unless stated otherwise.