VAT Training Presentation - New

Indirect tax is tax paid on the consumption of goods and services .An example of indirect tax is VAT (Value Added Tax)

 VAT is charged by taxable persons when they make taxable supplies Taxable persons are businesses or individuals that are registered for VAT

 Output tax is the VAT charged on sales or taxable supplies Input tax is the VAT paid on the purchases of goods and services

Output Tax £Less Input TaxVAT payable /Reclaimable x (x) x (x)

STANDARD RATE - 20%REDUCED RATE - 5%ZERO RATE - 0%

 In order to calculate VAT there are some easiest steps that can be followed: Standard rate VAT calculation, if the amount includes vat – to find out the VAT amount you need to divide the gross amount by 6. e.g – If you pay £600 for mobile phone incl. vat, then the vat amount will be £100 (£600/6). To find out the VAT on net amount, simply multiply the net amount by 20% which will give you the VAT amount that should be added with the net amount.

 To find out the VAT on reduced rated within the VAT inclusive amount, you need to divide the gross amount by 21. e.g – gas bill including VAT is £105. If you divide the gross amount by 21 (105/21) you will get the VAT amount which is £5.

 Office equipments Adult clothes Adult Shoes Services Other Goods

 Electricity – Domestic & residential Gas – Domestic & residential Heating oil – Domestic & residential Solar panels Insulation Water & wind turbines

 Books & newspapers Food items (unprocessed ) Public transport Children clothes & shoes Magazines

 The disadvantage is that such a business cannot claim their input tax

 Rent Insurance Health & dental care Postal services Education & training Betting & lottery

 Quarter 1 - Jan, Feb, March Quarter 2 - April, May, June Quarter 3 - July, Aug, Sept Quarter 4 – Oct, Nov, Dec

 Quarter 1 - 30th April 2015, 7th May Quarter 2 - 31st July 2015, 7th Aug Quarter 3 - 31st October 2015, 7th Nov Quarter 4 – 31st January 2016, 7th Feb

The tax point is the date onwhich the liability for outputtax arises ie. the date onwhich a supply (sale) isrecorded as taking place.

The basic tax point for goods is the date of delivery of the goods or the date the customer takes the goods away.For services, the tax point is the date the services are performed or completed

 VAT REGISTRATION THRESHOLD IS CURRENTLY £83,000 for 2016-2017. however from 2017-18 the threshold will be increased to £85,000 If taxable supplies in the next 30 days will reach £83,000 (2016-17) then the business must consider registering for VAT.

 Compulsory registration Voluntary registration Deregistration

 Businesses that make taxable supplies . When the taxable supplies reaches the registration threshold or will reach the threshold in the next 30 days

 A business can register for VAT voluntarily even if the taxable supplies are below the registration threshold currently £83,000 (2016-17) This is beneficial if the business make significant purchases and wants to claim the input tax

 A business will need to deregister if it ceases to makes taxable supplies Notify HMRC within 30 days of ceasing to make taxable supplies

 Standard Scheme Annual Accounting Cash Accounting

A single VAT return is filed for a 12 month periodHence only one VAT return is submitted each year but payment must still be made regularly .

 Only one return is submitted each year However VAT payments must still be made regularly The annual return must be filed within 2 months of the end of the annual return period.

 Normally, 9 payments on account of the VAT liability for the year are made at the end of months 4 to 12 of the year . Each payment represents 10% of the VAT liability for the previous year

 Taxable turnover is not more than £1,350,000 The business must be up to date with VAT returns Business must leave the scheme if estimated turnover for the next 12 months is more than £1,600,000

Prediction VAT Liability £5,000 2016 PaymentApril £500May £500June £500July £500August £500September £500October £500November £500December £500Total Paid £4,500January 2016 -February 2016 VAT ReturnTo Pay £6,000 £1,500

 Cash Accounting is a scheme whereby VAT is accounted for on the basis of the time when payments is actually received from customers and payments made to suppliers With the cash accounting scheme: Pay VAT on your sales when your customers pays you Reclaim VAT on your purchases when you have paid your supplier

 The turnover must not exceed £1,350,000 The business VAT return must be up to date The business must leave the scheme if the annual turnover exceeds £1,600,000

 A business calculates its VAT liability by simply applying a flat rate percentage to total turnover. In order to join the scheme the taxable turnover must not exceed £150,000 The business must leave the scheme if the turnover exceeds £225,000

 Pay a fixed rate of VAT to HMRC Keep the difference between what you charge your customers and pay to HMRC You can’t reclaim the VAT on your purchases – except for certain capital asset over £2000.

 From 1st April 2017 there are some changes to the flat rate scheme mainly due to the aggressive abuse by the small business. FRS can be still use by the business but if the entity classified as ‘Limited Cost Trader’ their fixed rate percentage will be 16.5% on the gross sales rather than current percentage. A ‘Limited Cost Trader’ will be defined as one whose VAT inclusive expenditure on goods is either less than 2% of their turnover or

 Greater than 2% of their VAT inclusive turnover but less than £1000 per annum. Goods for the purpose of this measure, must be used exclusively for the purpose of this business but exclude the following items: 1. Capital Expenditure & Food or Drink for the consumption of the flat rate business employee. 2. Vehicles, vehicle parts and fuel (except where the business is one that carries out transport services - for example a taxi business - and uses its own or a leased vehicle to carry out those services)

 This is suitable for supermarkets or other retailers who make large amounts of sales of inexpensive items. For these retailers it would be too time consuming to account for VAT on every single item sold. They would usually choose a period such as a day and calculate the proportion of sales that were for standard, zero or exempt items

 The Tour Operators' Margin Scheme (‘TOMS’) is a special scheme for businesses that buy in and re-sell travel, accommodation and certain other services agents. VAT cannot be reclaimed on margin scheme supplies bought in for resale. VAT on overheads outside the TOMS can be reclaimed in the normal way. A UK-based tour operator need only account for VAT on the margin, i.e. the difference between the amount received from customers and the amount paid to suppliers. VAT invoices cannot be issued for margin scheme supplies. In-house supplies supplied on their own are not subject to the TOMS and are taxed under the normal VAT rules.

 The debt must be more than 6 months old. There must be an invoice for the sale . The debt must have been written off in the accounts.

 Movement of goods between EU member states are not known as imports and exports but as acquisitions and dispatches The VAT implication of EU transactions depends very much on whether the businesses involved are registered for VAT or not.

 When an EU member sells goods to a VAT registered business in another EU country it is the buyer who pays over the VAT to HMRC in the buyer own country. Provided the seller has the buyers VAT registration number , the seller sells the goods at zero rated to the buyer.

 The seller will supply the goods at Zero rated The seller makes no entries in boxes 1 to 4 The seller will record the value of the sale with other sales in in box 6 and box 8

 The VAT registered buyer will pay the seller the sale price of the goods excluding any VAT The buyer will enter the VAT output tax in box 2 and the input tax in box 4. Hence the net amount of VAT the buyer pays to HMRC is NIL. The buyer will also enter the VAT exclusive amount in box 7 and box 9

 When a sale is made to a non VAT registered buyer the seller has to charge VAT at the standard rate. The buyer will pay the VAT inclusive price to the seller The entries on the return are the same as if selling to the UK customer but not recorded in box 8

 Application for Registration VAT1 Changes to registration details VAT484 Application to cancel VAT registration number VAT7 Notification of insolvency details VAT769 Notifications of errors in VAT returns VAT652 Application to Join AAS VAT600AA Application to Join FRS VAT600FRS EC Sales list VAT101

 You may be able to reclaim VAT paid on goods or services bought before you registered for VAT if the purchases were made within certain time limit 4 years for goods you still have, or that were used to make other goods you still have 6 months for services

 You can only reclaim Vat on purchases for the business now registered for VAT. They must relate to your ‘business purpose’. This means they must relate to VAT taxable goods or services that you supply. You should reclaim them on your first VAT Return (add them to your Box 4 figure) and keep records including: invoices and receipts a description and purchase dates information about how they relate to your business now



VAT Control AccountINPUT TAX £ OUTPUT TAX £Purchase Day Book X Sales Day Book Xless Purchase Return Day Book (X) less Sales Return Day Book (X)Cash Book X Cash Book XPetty Cash Book X EU Acquisitions XEU Acquisitions X Undercharge (Previous Period) XBad Debt Relief X TOTAL OUTPUT TAX XOverpayment (Previous Period) XTOTAL INPUT TAX X less TOTAL INPUT TAX (X) VAT Payable / Reclaimable X / (x)

VAT Total VAT Return Vat Paid Manufacturer Output Tax £100 £100.00£500+ VAT £100.00 £600 Input Tax £0 Wholesaler Output Tax £140 £40.00£700+vat £140.00 £840 Input Tax £100 Retailer Output Tax £200 £60.00 £1200 Input Tax £140 £200.00£1000+Vat £200.00 Individual Consumer Total to HMRC