Indirect Tax AAT

VAT Guide 700

The online guide published by HMRC which explains the workings of VAT

Taxable Person

This is any individual or organisation that is in business and should register for VAT if sales exceed the registration threshold

Output Tax

The VAT that is due to HMRC on the supply of goods or services made by the business, it is the VAT a business must pay

Input Tax

The VAT a business is charged on its business purchases and expenses, it is the VAT a business can claim back

VAT Return

HM Revenue and Customs form that formally records and calculates VAT to be paid or refunded by deducting input tax from output tax

Standard Rate

Typically 20% on most goods and services

Reduced Rate

5% VAT rate allowed for socially beneficial items such as domestic fuel

Zero-Rated Supplies

Supplies that are liable to VAT, but at 0% rate of VAT

Exempt Supplies

Supplies that are not liable to VAT, and do not appear on VAT returns. If a business sell wholly exempt supplies it cannot register for VAT

VAT Registration

Formal notification/registration with HMRC to charge, reclaim and account for VAT

VAT Threshhold

An amount set by HMRC for annual sales of a business, above which the business MUST register for VAT (£85,000 FA2019)

Voluntary Registration

Registering for VAT when your turnover is below the registration threshold to take advantage of being able to reclaim input tax (e.g. a business that sells zero rated goods)

Deregistration

When your turnover falls below below a certain threshold (£83,000 FA2019)

VAT Control Visit

Regular visit to a business by HMRC VAT Officers to ensure VAT is being charged correctly

VAT Invoice

An invoice issued by a VAT-registered supplier which must contain certain details including:
-an invoice number and date
-the seller's name and address
-the buyer's name and addresss
-a description of the goods and services
-unit price and quantity
-cost before VAT, VAT amount, total amount
-VAT rate and total of VAT

Simplified invoice

an invoice for £250 or less which does not have to show the VAT amount(s) charged seperately

VAT Receipt

a document issued for a cash sale which shows the name, address and VAT registration number of the supplier and the VAT amounts and rates of the goods sold

Indirect Tax

A tax which is imposed indirectly on consumers by taxing their spending

Pro-forma invoice

A document issued by a supplier, inviting a buyer to pay for goods before they are supplied - this document is not a VAT invoice

EU Customer Invoice

A VAT invoice issued to a customer in another EU member state; MUST show VAT registration number of the customer including the country code

VAT Rounding Rule

Round down to the nearest penny (chop it off after the 2nd decimal place) - retailers are exempt from doing this

Tax point

The date on which the supply is recorded for the purposes of the VAT return - Normally the date of the invoice, however, there are exceptions to this

VAT fraction

In practice, for a 20% VAT rate, all you have to do is divide the gross amount which includes VAT by 6 to give you the VAT figure (only works for 20% VAT)

Basic Tax Point

The date on which the goods are sent or collected or the service performed (also normally the invoice date), or used if the seller takes longer than 14 days to produce the invoice

Actual Tax point

Any variation to the basic tax point, for example if payment is made in advance of the date of supply, the invoice is raised before the date of supply or the invoice is issued within 14 days of the date of supply

Partial Exemption

Where a business makes both taxable and exempt supplies and has to calculate the amount of input tax it can reclaim based on the extent of its taxable supplies

'De minimis' limit

Where the amount of input tax which relates to a suppliers exempt supplies - which the supplier could not normally reclaim - is so insignificant that HMRC allows the business to reclaim it

Business Entertainment

Entertainment provided free of charge to people who are not employees of a business - food, drink, accommodation, theatre, sport

Fuel Scale Charge

A quarterly charge on the CO2 emissions of a vehicle to offset the claiming back of input VAT paid on fuel used by a company vehicle (entered into Box 1 of the VAT return)

Dispatch and acquisition

The sale and purchase of goods or services within the EU

Exports and Imports

The sale and purchase of goods of services outside the EU

Annual Accounting Scheme

Scheme which enables businesses with a turnover of £1.35m (FA2019) or less to make returns annually rather than quarterly. The VAT return is due two months after the end of the VAT period. The business makes nine interim payments on account (based on prior year tax liability) and a balancing payment at the end of the year

Flat Rate Scheme

A scheme which enables businesses with an annual taxable turnover of up to £150,000 (FA2019) to pay VAT at a flat percentage rate based on tax inclusive (gross) turnover

Cash Accounting Scheme

A scheme which allows businesses (with an annual turnover of £1.35m or less) to account for VAT on the basis of payments received and made rather than the tax point on invoices received and issued; it provides automatic relief for VAT on bad debts.

VAT Control Account

A central account which collects all the accounting data needed for the VAT Return.

Bad Debt Relief

A scheme available for any registered supplier whereby output VAT paid over to HM Revenue & Customs on a debt which has subsequently (over 6 months after the due date) gone bad, is reclaimable after the VAT Return

Voluntary Disclosure

Disclosure of a net error (over set limits) in VAT calculations to HM Revenue & Customs by a registered supplier

Subcharge liability notice

A notice issued by HMRC to a VAT-registered supplier who has failed to make a VAT Return within the stipulated period

Default Surcharge

A percentage charge on an amount of unpaid VAT

Finance Act

The UK Act of Parliament passed each year to put into effect changes proposed in the budgets

VAT Notices

Regulations imposed by HM Revenue and Customs which have legal force

Online Services

The online interface of HMRC which provides advice and enables businesses to submit VAT Returns oniline