1
Q
Standard rate of VAT
A
20%
2
Q
Reduced rate of VAT
A
5%
3
Q
Who sets out tax legislation
A
The government
4
Q
A
5
Q
Who updates tax legislation
A
The annual finance act
6
Q
Who enforces tax rules
A
HMRC
7
Q
What are the powers of HMRC?
A
Inspecting premises and records
Charging penalties
Issuing assessments for underpaid tax
8
Q
Visits by VAT officers are known as
A
VAT control visits
9
Q
If a taxpayer disputes with HMRC they can;
A
Ask for the case to be reviewed by another HMRC officer
Appeal to the tax tribunal
10
Q
What is VAT
A
An indirect tax on consumer spending
11
Q
Output VAT vs input VAT
A
Output VAT is the VAT a business charges on its sales and is due to HMRC, while input VAT is the VAT it pays on its purchases.
12
Q
What is a taxable person
A
Someone registered for VAT
13
Q
What legisalation sets out what rate of VAT supplies come under
A
The VAT act 1994
14
Q
If a supply is exempt from tax, can it register for tax?
A
No
15
Q
Can you recover input tax when selling zero rated supplies
A
Yes
16
Q
VAT inclusive meaning
A
The value includes VAT
17
Q
What is the tax point?
A
The date of supply for tax purposes (it determines in which VAT period the supply is included).
18
Q
Why is the tax point important
A
If VAT rates were to change, the correct rate would need to be applied
If supplies made aren’t included within the correct return, penalties may arise
19
Q
When is the basic tax point
A
Once services are performed / goods collected.
20
Q
For zero rated supplies is the 14 day rule of actual tax point applicable
A
No
21
Q
If a part payment is made in advance, is a tax point created for this date?
A
Yes but only for the amount paid
22
Q
If a refundable deposit is paid, is a tax point created?
A
No
23
Q
Actual tax point is the same as basic tax point if…
A
If no invoice was issued within 14 days of BTP
24
Q
If goods are sent out on approval, BTP occurs at the earlier of:
A
The date the goods are adopted (when the customer approves and accepts the goods)
The date payment is received
A year from the date the goods were dispatched
25
If services are performed on a continuous basis, BTP occurs at the earliest of:
An invoice is issued
Payment is received
26
The registration threshold is based on turnover of taxable supplies, excluding:
VAT
Sale of capital assets
Exempt supplies
27
What is the historic test
The historic test checks whether your taxable turnover for the previous 12 months has exceeded the VAT registration threshold.
28
If your turnover exceeds 90,000 what should you do?
Notify HMRC within 30 days
29
When does a business become registered for VAT once they’ve notified HMRC?
The first day of the second month after turnover exceeded the threshold.
30
What is the future test
The future test requires VAT registration if you expect your taxable turnover to exceed £90,000 in the next 30 days alone.
31
For the future test, when should you notify by and when will you be VAT registered from?
Notify by the end of the 30 day period and you’ll be registered from the beginning of the 30 day period
32
If an individual has multiple businesses, how many times do they have to register for VAT
Once
33
Why could a business not register for VAT
If only making exempt supplies
34
Pros of voluntary vat registration
Across possible late registration penalty
Can recover input tax
35
Cons of voluntary VAT registration
Takes up time
Makes prices higher for customers
36
When do you have to apply for voluntary deregistration
Anytime
37
What are the effects of deregistration?
You must pay output tax on the value of inventory and assets as previously you reclaimed input tax on it
38
You don’t pay output tax when you deregister for VAT if that value of assets doesn’t exceed…
1000
39
Can records be kept electronically
Yes
40
What do VAT records include
Goods and services bought and sold
Sales invoices
Purchase invoices
Credit and debit notes received/issued
Adjustments or corrections to the VAT account
41
Debit note vs credit note
A debit note increases the amount a customer owes, while a credit note reduces it.
42
Why may a company apply for exemption from registration for vat
If they only make zero rated supplies
43
VAT invoices should be provided to the purchaser within 30 days of the earlier of:
Supply or payment
44
In what instances would you not need to provide a VAT invoice to a purchaser
If the purchaser isn’t VAT registered
If you’re a retailer
If the goods are zero rated
45
In what instances would you not need to provide a VAT invoice to a purchaser
If the purchaser isn’t VAT registered
If you’re a retailer
If the goods are zero rated
If the goods are a gift
46
Can you send both an electronic and paper invoice
No, only one or the other.
47
Can you recover input VAT on car running costs
Yes
48
If a businesses recovers all input tax on fuel for a car used both for business and private use, what happens?
They have to pay a fuel scale charge. These are quoted VAT inclusive so 1/6 is due to HMRC.
49
If traders wish to recover input tax on private fuel, they must apply set rates based on:
C02 emissions of the car (if not a multiple of 5 you round down)
Length of accounting period
50
If the owner of a tax registered business takes goods for private use, an …. Will apply
Output tax
51
A taxable person making both taxable and exempt supplies is known as a
Partially exempt trader
52
For a partially exempt trader, the input tax relating to their exempt supplies can be recovered but
Only below a small limit
53
What is residual input tax
Input tax that cannot be directly attributed to either making taxable or exempt supplies
54
The input tax relating to exempt supplies must not exceed ….% of the total input tax
50
55
Is VAT rounded on invoices?
Yes
56
What is a modified invoice
A modified invoice is a special type of VAT invoice used mainly in retail when the total exceeds £250
57
What is the difference between a modified invoice and a full VAT invoice
Modified invoice includes all info on a full invoice plus the VAT inclusive amount.
58
Do retail businesses need to keep copies of simplified invoices
No
59
What is the difference between a full and simplified invoice
The customers details aren’t required
The VAT amount isn’t shown separately
60
Should bulk buy discounts be deducted before or after calculating VAT on the invoice
Before
61
Do all businesses have to do the making tax digital regime?
Yes
62
Box 1 of VAT return
VAT due on sales
63
Box 3 VAT return
Total VAT due
64
Box 4 VAT return
VAT reclaimed on purchases
65
Box 5 VAT return
Net VAT to pay
66
Box 6 VAT return
Total value of sales exlcuding VAT
67
Box 7 VAT return
Total value of purchases excluding VAT
68
A business can reclaim VAT on irrecoverable debts if:
Output tax was originally paid to HMRC
Its been 6 months since payment was due but the debt isn’t older then 4 years and 6 months
The business did not charge more than selling price
69
Where is the irrecoverable debt relief entered in a VAT return
Box 4
70
What is a pro forma invoice?
An offer to supply goods or services and a request for payment before goods are dispatched.
71
Costs from VAT changes:
Changes to IT systems
Staff training
Altering price lists
72
Which box on a vat return is bad debt relief entered
Box 4 ( purchases VAT)
73
What happens VAT wise if a UK business imports foreign goods?
They charge output tax on themselves but then can reclaim it as input tax
74
What is postphoned VAT accounting
Postponed VAT accounting (PVA) is a UK system that lets businesses avoid paying import VAT upfront at the border. Instead, you record and reclaim the VAT on your VAT Return, just like normal input tax.
75
When does a business not registered for VAT pay VAT on imports?
At the point of entry to the UK
76
If a UK business supplies services to overseas businesses, how much VAT is charged?
0. The overseas business customer accounts for VAT in their own country using the reverse charge.
77
If a UK business supplies services to overseas non-business customers, is VAT charged?
Yes
78
What is the reverse charge principle?
The reverse charge is a VAT rule where the supplier leaves VAT off the invoice and the customer pretends they supplied the service to themselves by both charging and reclaiming the VAT on their own VAT return.
79
What is PLR
The tax unpaid due to the error
80
For annual vat returns, how many points must accrue to receive a penalty?
2
81
For quarterly vat returns, how many points must accrue to receive a penalty?
4
82
If a UK business sells goods to a foreign country, is VAT charged?
No
83
Interest will be charged by HMRC for late payment of VAT from … until …
First day the payment is due
It is paid in full
84
If HMRC issue an assessment that is too low, a penalty of up to … can be charged for not telling them it is incorrect within 30 days.
30%
85
What does "written evidence that there is doubt about the liability of a supply" mean
It means having written proof that you are genuinely uncertain about the correct VAT treatment of a supply.
86
If a business pays VAT by direct debit, how many days later is its deadline
3
87
When does VAT need to be paid by?
VAT must be paid to HMRC one month and seven days after the end of your VAT period
88
Is class 1 primary NIC employee or employer?
Employee
89
What is an employment allowance
Employment Allowance lets eligible employers cut their annual employer National Insurance liability by up to £10,500
90
When does the tax year run
6th april till 5th april
91
Who is responsible for paying income tax and class 1 primary NIC to HMRC?
The employer, they must deduct these from employees gross pay.
92
For tax year 2025/2026, what is the personal allowance?
12,570
93
A business must register as an employer if any of its employees?
Are paid 96+ a week
Provided with benefits
Receive a pension
Have another job
94
Registration of being an employer must take place in what time frame?
No more than 2 months before paying employees but before first payday
95
How many days can a PAYE reference number take to be issued?
5 working days
96
What payroll records must be kept?
Reports to HMRC
Amounts paid to employees
Taxable benefits and expenses
Tax code notices
97
How long must payroll records be kept?
3 years from the end of the tax year they relate to
98
Failure to keep payroll records leads to a penalty of up to
3000
99
Employers with fewer than … employees can use free payroll software
10
100
What is HMRCS own free payroll software called
Basic PAYE tools
101
What is gross pay
Total earned before nay deductions are made
102
What are statutory deductions
The deductions an employer must make from an employees pay
103
Under what act must employers set up a workplace pension scheme
The pensions act 2008
104
Employers myst enrol their employees into a workplace pension scheme if they:
Work in the UK
Aged 22+
Earning at least 10,000
105
Do you pay income tax on pension contributions
No
106
What non-statutory deduction is an allowable deduction?
Charitable donations via give as you earn scheme
107
When must employers provide payslips by:
Payday
108
Real time information
Real Time Information is the system where employers must report payroll details to HMRC every time they pay employees
109
Full payment submission
A Full Payment Submission (FPS) is the report an employer sends to HMRC every payday showing the employee’s details, pay, and deductions.
110
An fps should be submitted:
On/before employees payday but an FPS for a new tax year cannot be filed before march of that year
111
What should an FPS state?
Tax year
Employer’s Class 1 secondary NIC for the period
Starter and leaver information
Employer PAYE reference and Accounts Office reference
Employee details
Employee pay and deductions
Year‑to‑date figures
112
113
Which part of a P45 is given to the new employer?
Parts 2 and 3
114
When a new employee starts, the employer needs to report what on the FPS:
Date employment started
Employee’s address
115
If the employee has a p45 in the same tax year as new employment, what tax code is used?
The tax code on the P45
116
If the employee has a p45 in a different tax year as new employment, what tax code is used?
An emergency one
117
When is an employer payment summary submitted with an FPS?
If the employer reclaims maternity, paternity or adoption payments or claims the employment allowance.
118
When is an employment payment summary submitted instead of an FPS?
If the employer has not paid any employees in a tax month
119
What are the contents of an employer payment summary
Employer name, PAYE reference + accounts office reference
Tax year
Period it relates to
Confirmation that no employees have been paid / amounts being reclaimed.
120
When is the latest the employer payment summary should be submitted
The 19th of the month following the tax month it relates to
121
Employers are required to make electronic payments to HMRC if…
They have 250 employees or more
122
If an employers total PAYE + NICs is less than 1500…
They can make payments under PAYE on a quarterly basis rather than monthly.
123
What is a p60
A P60 is the annual certificate an employer gives an employee after the tax year ends, showing their total pay, tax, and National Insurance deducted for the whole year.
124
What is a P11D
A P11D is simply the form employers use to report taxable employee benefits to HMRC, such as company cars or private medical insurance.
125
Do employees play NICs on benefits
No
126
In what case would a P11D not be needed if there are benefits?
When the employer payrolls the benefits, because the taxable value is reported and taxed through payroll, so HMRC does not require a separate P11D.
127
What is a p11d(b)
A P11D(b) is the form an employer submits to HMRC to report the total Class 1A National Insurance due on all taxable benefits provided to employees for the tax year.
128
An employer may be subject to penalties if…
Submits FPS/EPS late
Late payment of PAYE+NICs
129
What is a default in payroll
Failure to meet an obligation eg A late payment of PAYE
130
What is an employer compliance review?
An employer compliance review is an HMRC check to make sure an employer is running payroll correctly and meeting all PAYE, NIC, and benefits‑reporting obligations.
131
What must a credit note have on it?
Be labelled as a credit note
Have number and date of original tax invoice
Similar info to original invoice
132
A pro forma invoice is replaced with a tax invoice once…
The customer accepts the goods or payment is received
133
What are the exemptions to the making tax digital regime?
Run by people who religious beliefs don’t allow for electronics
Not practicable for business to use it
Business is subject to insolvency proceedings
134
Businesses must use one of the following methods to comply with MTD requirements?
Compatible software
Bridging software
135
Vat must be paid within a month (not a month and 7 days) if…
The business uses the annual accounting scheme
136
Cons of annual accounting scheme
For businesses with declining taxable turnover, they will be overpaying VAT as the payments are based on last years
137
When is the tax point under the cash accounting scheme?
Data of receipt of cash
138
Pros of cash accounting scheme
Automatic irrecoverable debt relief
Cash flow advantage
139
Cons of cash accounting scheme:
Not suitable for businesses with zero rated / cash sales
Input VAT cant be claimed until supplier has been paid
Must account for all outstanding VAT when leaving the scheme
140
Flat rate scheme
Business pays HMRC a % of gross turnover, based on its business sector.
141
Does total VAT inclusive turnover include exempt supplies?
Yes
142
Pros of flat rate scheme
Don’t need to keep records of VAT on each individual transaction
May pay less VAT
Less admin
143
What businesses would the flat rate scheme not be suitable for?
Ones with higher than usual input tax or zero rated supplies
144
What are relevant goods
Items used directly in the business. Excludes capital items.
145
What is the cash accounting scheme
The Cash Accounting Scheme lets a VAT‑registered business pay VAT to HMRC only when customers actually pay them, and reclaim VAT only when they’ve paid their suppliers, instead of using invoice dates.
AAT Level 3
flashcards
Decks in class (4)
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