AAT L3 Chapter 6 - VAT Returns and Overseas Aspects

What should be entered in each box of the VAT return?

• Box 1 = VAT due on sales and other outputs

• Box 2 = N/A

• Box 3 = Total VAT due (sum of B1 and B2)

• Box 4 = VAT reclaimed on purchases and other inputs

• Box 5 = Net VAT to be paid by Customs to you (difference between B3 and B4)

• Box 6 = Total value of sales and other outputs excl. VAT

• Box 7 = Total value of purchases and other inputs excl. VAT

• Box 8 = N/A

• Box 9 = N/A

1. Boxes 1-5 (VAT amounts) must be rounded to the nearest penny

2. Boxes 6-9 (outputs and inputs) must be rounded to the nearest pound

What are possible reasons for differences between the VAT return and accounting records?

1. Accounting system has been set up for different VAT scheme to scheme that company is registered to

2. Incorrect transfer of data from manual records into accounting software

How are items with non-recoverable input tax taken into account on the VAT return? Give examples.

1. Wages, dividends, salaries → out of scope, not included on VAT return at all

2. Entertaining UK customers or suppliers → VAT irrecoverable, does not go in Box 4

3. Cars with some private use → VAT irrecoverable, does not go into Box 4

4. VAT-exclusive figure for all purchases, whether taxable, exempt, or blocked, is included in Box 7

What are the conditions for an irrecoverable debt to be reclaimed on a VAT return?

1. Output tax was paid on original supply to HMRC

2. 6 months have passed between date payment was due (or date of supply if later) and date of VAT return

3. Debt is less than 4 years and 6 months old

4. Debt has been written off as irrecoverable in accounting records

5. Debt has not been sold/given to debt factoring company

6. Business did not charge more than selling price for items

How is VAT on an irrecoverable debt reclaimed on the VAT return?

1. Box 4 is increased

2. No adjustment made for net amount

• If business receives repayment of debt later, must make adjustment to debt relief claimed by increasing Box 1

How are exported goods included on the VAT return?

• When customer sells goods to customer based outside of UK, goods are treated as

1. Zero-rated

2. Output tax charged at 0%

3. Include with other sales in Box 6

How are imported goods included on the VAT return?

1. Consumer/business not registered for VAT pays VAT on imports at point of entry to UK and cannot reclaim VAT

2. Business importers registered for VAT can use postponed VAT accounting to pay and reclaim VAT on imports at the same time

• UK customer must charge itself output tax (Box 1) on purchase of goods at relevant rate

• If goods related to business’s taxable supplies, amount put down as output tax (Box 1) can be reclaimed as input tax (Box 4) in same return

• Include VAT excl. cost in total of purchases (Box 7)

3. Business importers registered for VAT can pay VAT at point of entry but not recommended because output tax is payable earlier and not reclaimed until later

How is the supply of services to overseas countries included on the VAT return?

• Place of supply determines how VAT is charged

• Business to Business (B2B)

1. Supply treated as made in country where customer is located

2. Outside scope of VAT

3. Include net value in Box 6

• Business to Consumer (B2C)

1. Supply treated as made in country where supplier is located

2. Include output VAT in Box 1

3. Include net value in Box 6

How is the purchase of services from overseas countries included on the VAT return?

• Reverse charge applied

1. Acquiring business treats itself as if it supplied services to itself and accounts for VAT at relevant rate

2. Includes output tax (Box 1) and recovers by including it as input tax (Box 4) in same return

3. Include net value in Box 6 and 7