CHAPTER 12 - VAT

The following four statements all relate to the cash accounting scheme for VAT. Which of the following is true?

VAT is accounted for on the basis of the basic or actual tax point date

Relief for bad debts is given in the quarter after the debt has been written off

A person with taxable supplies less than £1,600,000 can join the scheme

The scheme allows deferral of payments of output VAT to HMRC where extended credit is given

The scheme allows deferral of payments of output VAT to HMRC where extended credit is given

Which of the following is not a feature of the flat rate scheme?

Businesses calculate VAT due as a flat rate percentage of their VAT inclusive turnover

The percentage applied depends on the size of business

Businesses issue normal tax invoices to customers

There is a 1% reduction in the flat rate percentage during the first year of VAT registration

The percentage applied depends on the size of business

Which two of the following statements about VAT are true?

Businesses with turnover of £1.5m may elect to join the annual accounting scheme

Businesses operating the flat rate scheme need not issue VAT invoices

Businesses which are in a net VAT repayment position may elect for monthly repayments of VAT

Businesses operating the flat rate scheme apply their sector percentage to total VAT inclusive turnover

Businesses operating the cash accounting scheme must wait 6 months before reclaiming VAT on bad debts

Businesses which are in a net VAT repayment position may elect for monthly repayments of VAT

Businesses operating the flat rate scheme apply their sector percentage to total VAT inclusive turnover

Warren has accounting periods ending on 30 June each year, and he is within the annual accounting scheme.

By what date must Warren submit the VAT return for his accounting year?

31 August

VAT Returns for the accounting year must be

two months after the end of the accounting period

Minor Ltd had a VAT liability of £42,000 in its year ended 31 March 2024. The liability for the year ended 31 March 2025 is £42,420. Minor Ltd is a member of the annual accounting scheme and opted to make three quarterly payments during the year.

The balancing payment for the year ended 31 March 2025 is:

This is the last balancing payment to be made

• (3/4 × 42 000) = 31 500

• 42 420 - 31 500

• = 10,920

Minor Ltd had a VAT liability of £42,000 in its year ended 31 March 2024. The liability for the year ended 31 March 2025 is £42,420. Minor Ltd is a member of the annual accounting scheme and opted to make three quarterly payments during the year.

The Payment is due by:

31 May 2025

Keenan is newly VAT registered and has just joined the flat rate scheme. The flat rate percentage for his type of business is 7% after taking account of the first year discount available.

The VAT-exclusive turnover of his business is £25,000 for the first quarter and purchases (excluding VAT) of £1,200 were incurred.

All purchases and sales are subject to VAT at the standard rate. What is the VAT due for the quarter?

£2 100

Jude, a VAT-registered trader, has a VAT inclusive turnover for the quarter of £35,000 and costs of £500. He is a member of the flat rate scheme and HMRC have classed Jude as a limited cost trader. The relevant percentage for limited cost traders is 16.5%.

VAT due for the quarter is:

£5775

Fuchsia Ltd makes up its accounts to 30 June each year, and has VAT accounting periods that are in line with this.

By what date must Fuchsia Ltd submit its final VAT return for its accounting year?

7 August

Lavender Ltd has prepared its VAT return for the quarter ended 31 March 2025.

By what date should Lavender Ltd submit its VAT return for the quarter ended 31 March 2025?

7 May, if filled electronically

Lavender Ltd has prepared its VAT return for the quarter ended 31 March 2025.

By what date should Lavender Ltd pay its VAT relating to the quarter ended 31 March 2025?

7 May - deadline to submit VAT return and date to pay is the same.

Cornflower plc had an annual VAT liability in 2024 of £3,000,000. Its VAT liability for the quarter ended 31 March 2025 is £900,000.

Which of the following options correctly identifies Cornflower plc's required VAT payments for the quarter ended 31 March 2025?

A A single payment of £900,000

B Three separate payments of £300,000 each

C Two payments of £250,000 each and a balancing payment of £400,000

D Two payments of £125,000 each and a balancing payment of £650,000

D Two payments of £125,000 each and a balancing payment of £650,000

Substantial Traders

• If an trader has an annual VAT liability in excess of £2.3 million

• Required to make POA each quarter

What is the maximum invoice value if a trader wishes to issue a simplified VAT invoice?

£250

Dilara has a business with a year ended 31 December 2024. Dilara uses the annual accounting scheme.

Which of the following statements is correct?

A She pays all of her VAT in one payment and submits her return by 7 February 2025.

B She pays all of her VAT in one payment and submits her return by 28 February 2025.

C She pays her VAT in nine monthly instalments starting in April 2024 with a balancing payment and the return submitted by 7 February 2025.

D She pays her VAT in nine monthly instalments starting in April 2024 with a balancing payment and the return submitted by 28 February 2025.

D She pays her VAT in nine monthly instalments starting in April 2024 with a balancing payment and the return submitted by 28 February 2025.

Duffey operates the annual accounting scheme for his VAT payments. He opted to make nine monthly payments during the year. His total VAT liability in the year ended 31 March 2024 was £20,000 and in the year ended 31 March 2025 is £22,500.

What is the final balancing payment of his VAT for the year ended 31 March 2025 and when is it due?

£4,500 by 31 May 2025

Michael is registered for VAT. He issues full invoices for goods sold for more than £250, and simplified invoices for goods sold for less than £250.

In relation to which of these invoices, if either, is Michael required to retain copies?

Both

What is the maximum permitted annual taxable turnover for a trader to join the annual accounting scheme?

£1,350,000

Which of the following statements about the VAT payments on account scheme for substantial traders is true?

A Under the payments on account scheme VAT is paid in quarterly instalments.

B Under the payments on account scheme VAT is paid in instalments every other month (ie, six payments per annum).

C Each payment on account is 1/24 of the total VAT liability of the previous year.

D The balancing amount for the year, if any, is payable two months after the year end

C Each payment on account is 1/24 of the total VAT liability of the previous year.

Which two of the following statements about VAT are true?

A Businesses with taxable turnover greater than £2.3 million must join the VAT payments on account scheme.

B Businesses operating the flat rate scheme apply their sector percentage to total (both taxable and exempt) VAT-inclusive turnover.

C HMRC may grant exemption from registration to zero-rated traders that have negligible amounts of input VAT.

D Businesses operating the annual accounting scheme must still file VAT returns every quarter.

E Businesses operating the cash accounting scheme cannot also join the annual accounting scheme.

B Businesses operating the flat rate scheme apply their sector percentage to total (both taxable and exempt) VAT-inclusive turnover.

C HMRC may grant exemption from registration to zero-rated traders that have negligible amounts of input VAT.

VAT Payments on Account for Businesses in excess of £2.3 million

Businesses with an annual VAT liability in excess of £2.3 million must join the VAT payments on account scheme.

Annual Accounting Scheme

Need to file one VAT return

Which two of the following statements concerning cash accounting are true?

A VAT is accounted for on the basis of cash paid and received rather than on invoices.

B Bad debt relief is available six months from the date the debt was due to be received.

C The scheme is advantageous for businesses making only zero-rated supplies.

D The scheme is advantageous for businesses offering extended credit to customers.

E Businesses in the scheme must leave if taxable supplies in the previous 12 months exceed £1.35 million.

A VAT is accounted for on the basis of cash paid and received rather than on invoices.

D The scheme is advantageous for businesses offering extended credit to customers.

Cash Accounting Bad Debts

are automatically relieved because output VAT is not paid until the debt is received from the customer

Major plc had a VAT liability of £3 million in its year ended 31 October 2024. The VAT liability for the quarter to 30 April 2025 is £800,000.

Assuming the correct payments on account have been made, how much is due by 31 May 2025?

£550 000

Which of the following is a feature of the annual accounting scheme?

A VAT must be paid in quarterly or monthly instalments.

B Automatic bad debt relief is given.

C The VAT return is due two months and seven days after the end of the year.

D You cannot join the annual accounting scheme if you have previously left the scheme.

VAT must be paid in quarterly or monthly instalments.

Which of the following is a feature of the flat rate scheme?

A Businesses calculate VAT due as a flat rate percentage of their VAT exclusive turnover.

B A limited cost trader may not join the flat rate scheme.

C Businesses issue normal tax invoices to customers.

D In the first year a trader must use 16.5% as the flat rate.

C Businesses issue normal tax invoices to customers.

Giovanna makes standard-rated supplies. She voluntarily registered for VAT from her first day of trading and simultaneously joined the flat rate scheme. The flat rate percentage she must use is 11%.

She has now been trading for two years. For her latest trading quarter Giovanna had total turnover of £8,500 (exclusive of VAT). Giovanna's total purchases were £2,400 (exclusive of VAT).

£1122

• 11%(2400 × 1.2)

For Cash Accounting the tax point of supply is when

the payment is received.

Tony has been VAT-registered for many years, making only standard-rated supplies. He is a member of the flat rate scheme for VAT. The flat rate percentage based on his trade sector is 8%. In the quarter ended 31 March 2025 Tony made sales of £17,000 (exclusive of VAT). This figure includes £2,500 in respect of the sale of a computer that had been used in Tony’s business.

How much VAT is payable to HMRC for the quarter ended 31 March 2025?

£1632

Which two statements about the flat rate scheme are correct? A A trader can join if they expect total net turnover for the next 12 months not to exceed £230,000.

B A trader using the flat rate scheme may also be authorised to use the annual accounting scheme.

C The flat rate is applied to the VAT-exclusive turnover.

D Where a customer requires an invoice, a flat rate trader who makes wholly standard-rated supplies will issue a VAT invoice showing 20% output tax.

B A trader using the flat rate scheme may also be authorised to use the annual accounting scheme.

D Where a customer requires an invoice, a flat rate trader who makes wholly standard-rated supplies will issue a VAT invoice showing 20% output tax

Which two statements about the cash accounting scheme for VAT are correct?

A A VAT return is completed once a year.

B Automatic bad debt relief is given.

C Output VAT is accounted for when cash is received from the customer.

D Output VAT is calculated by applying a flat rate percentage to the VAT-inclusive turnover.

E VAT is paid over to HMRC each month by direct debit.

B Automatic bad debt relief is given.

C Output VAT is accounted for when cash is received from the customer.

A trader may join the annual accounting scheme where the taxable turnover in the following year is not expected to exceed:

1,350,000