Tax Processes Flashcards

Question

VAT and Business Documents (CH2) How long does a VAT-registered supplier have to give an invoice to a customer?

Answer 1

When a VAT-registered supplier sells goods or services, they must give the purchaser a VAT invoice **within 30 days**.

Answer 2

A VAT invoice must show: • an invoice number • the seller's name or trading name, and address • the seller's VAT registration number • the invoice date • the time of supply (also known as the tax point) if this is different from the invoice date • the customer's name or trading name, and address • a description of the goods or services supplied to the customer which enable the customer to identity what is being charged for

Answer 3

* the **unit price** or rate (e.g. for a service), **excluding VAT** - the **quantity of goods** (e.g. items) or the extent of the services (e.g. hours) * the rate(s) of VAT that applies to what is being sold * the **total amount payable**, **excluding VAT** * the rate of any settlement (cash) discount * the **total amount of VAT charged**

Answer 4

* where the **seller is not registered for VAT** * where the **buyer is not registered for VAT** (although a customer can ask for one) * where the **seller is a retailer** (although a customer can ask for one) * where the **item is a free sample** and normally subject to VAT * if the **purchaser is on a self-billing system** (i.e. the purchaser issues the invoice and sends it with the payment)

Answer 5

A Simplified VAT Invoice.

Answer 6

A Modified VAT Invoice.

Answer 7

Simplified Invoices: There are also situations where invoices may only show the **VAT-inclusive amount:** - where the transaction total is **less than £250** gross - where the buyer, **in agreement** with the customer, issues an invoice in a modified format A simplified invoice **cannot include any exempt supplies**

Answer 8

* the **supplier's name, address and VAT registration number** * the **date of supply** (tax point) * a **description** of the goods or services * the **total charge payable** for each item, including VAT * the **VAT rate** applicable to each item where the supply includes items at different VAT rates

Answer 9

- A modified invoice is only issued for goods and services totalling **more than £250**. - Includes the price of the product **both inclusive and exclusive of VAT**. - **Can only be issued if the customer agrees** to the invoice including the total VAT amount. - **Generally issued by retailers that sell products direct to customers** rather than to other businesses.

Answer 10

Pro-forma invoice - a document issued by a seller **offering goods at a certain price** and **inviting the buyer to send a payment** in return for which the goods will then be supplied and invoiced in the normal way. A pro-forma invoice does not relate to a firm sale so **cannot be used as evidence to reclaim input tax.** Pro-forma invoices should be clearly marked '**THIS IS NOT A VAT INVOICE**'.

Answer 11

* Name, Address and VAT Registration number of the retailer * Items charged at different VAT rates listed separately

Answer 12

The reverse charge is a mechanism for accounting for VAT whereby **the customer charges themselves VAT**, rather than the supplier charging VAT.

Answer 13

Under the Construction Industry Scheme (CIS), the reverse charge makes it the **customer's responsibility to account for VAT** which means that there is no opportunity for the supplier to disappear without paying the VAT to HMRC. * The **invoice must be raised by the sub-contractor (the supplier) without including any VAT**. Most accounting software will have the capability to produce reverse charge invoices.

Answer 14

To Account for this on its VAT Return: 1. The **Customer must charge itself** (Output VAT - Box 1) 2. And **Reclaim the VAT**. (Input VAT box 4) 3. The **net value** should be reported **in Box 7.** 4. The **Supplier should report the net sale**, **excluding the VAT**, **in Box 6**.

Answer 15

- Always round down to the nearest penny. - Divide total amount by 6 to find the VAT value. Or: total amount including VAT —————————————— X VAT% (100% + VAT %)

Answer 16

HMRC requires that VAT is calculated on the **invoice amount after any trade discount** has been deducted. Regarding **prompt payment discounts**, a business must account for **VAT on the money actually received.**

Answer 17

The tax point of a taxable supply is the **date of supply** that it is recorded as taking place for the purposes of the VAT Return. * HMRC makes a distinction between the Basic Tax Points and Actual Tax Points.

Answer 18

* the supplier sends them to the customer, or * the customer collects them, or * the supplier makes them available for the customer to use Whether a business supplies goods or services, the rules for basic tax points can be set aside if an actual tax point is created.

Answer 19

* the date when the service is carried out or * the date when all the work is completed Whether a business supplies goods or services, the rules for basic tax points can be set aside if an actual tax point is created.

Answer 20

If a VAT invoice is issued or payment is received before the basic tax point then the date of the VAT invoice or the payment — **whichever happens first becomes the actual tax point**.

Answer 21

If a VAT invoice is issued up to **14 days after the basic tax point**, the **date of issue of the invoice becomes the actual tax point**.

Answer 22

If a business supplies a service to a customer on a continuous basis over a period of time that is longer than one month, it may issue invoices regularly throughout that period. In this case, **a tax point is created everytime an invoice is issued, or a payment is made - whichever happens first**.

Answer 23

Sometimes a retail customer will have an arrangement with a supplier where it only pays the supplier for the goods it actually sells, with any unsold goods being returned to the supplier. Goods supplied on a sale or return basis remain the property of the supplier until the customer indicates they are intending to keep them. A time limit may be fixed for the sale or return, in which case the tax point is determined as follows: * where the time limit is **12 months or less**, the tax point is the date the time limit expires * where the time limit is **more than 12 months**, or there is no fixed time limit, the tax point is **12 months from the date the goods were sent** * where the customer adopts the goods before the fixed period has expired, the tax point is **the date the goods are adopted**.

Answer 24

* A business may allow a customer to pay for goods by instalments over an agreed period of time. The goods remain the property of the business until the full price is paid. This is **known as a 'conditional sale'**. * **The basic tax point for a conditional sale is created when the goods are handed over to the customer**. On that date a business should account for the VAT on the full value of the goods.

Answer 25

The principle of the tax point is important to the VAT-registered business: * It results in a **consistent and accurate method of recording** VAT transactions * **It can help cash flow** in a business - an early tax point helps a business purchasing goods because the **input tax can be reclaimed earlier**

Answer 26

The VAT amount due to HMRC = Output tax-Input tax HMRC will therefore want to ensure that a VAT-registered business: 1. Charges the correct amount of output tax 2. Claims the correct amount of input tax to offset against the output VAT it charges

Answer 27

If a VAT registered business makes both taxable and exempt goods, it **can only reclaim input VAT on the goods that are taxable**. However, if the VAT incurred on the exempt supplies is **below a certain amount** (the Deminimis Limit) then **input VAT can be reclaimed in full.**

Answer 28

A VAT registered business must charge VAT on the sale of taxable goods and services (output VAT).

Answer 29

The reclaim of VAT charged on its purchases and other expenses (input VAT).

Answer 30

Input VAT is deducted from output VAT and the difference is the amount due to or from HM Revenue & Customs (HMRC): Output VAT - input VAT = amount payable (or repayable)

Answer 31

The general rule is that input VAT can be reclaimed by businesses on goods and services bought for the business, as long as the business makes standard, reduced or zero-rated supplies.

Answer 32

VAT can't be reclaimed on the following: * goods and services that are for non-business or personal use * business client entertaining * the purchase of a car (with a few exceptions) * goods and services that relate to exempt supplies.

Answer 33

If a business only makes exempt supplies, it can't register for VAT and therefore can't claim any input VAT back, so this is an additional cost to the business. It typically affects charities and education providers.

Answer 34

Some VAT registered businesses sell a mixture of taxable (standard, reduced or zero-rated) and exempt supplies. **They are known as partially exempt businesses** and must follow the rule below relating to claiming back input VAT. Purchases that relate to exempt supplies = exempt input VAT. Amount of exempt input VAT below the 'de minimis' amount = exempt input VAT can be reclaimed in full. Amount of exempt input VAT above the 'de minimis' amount = exempt input VAT cannot be reclaimed

Answer 35

The meaning of the 'de minimis' amount is: 1. The exempt input VAT must be **less than £625 per month** (on average). 2. The exempt input VAT must be **less than half of the total input VAT claimed.**

Answer 36

VAT cannot be claimed on business entertaining, which is the free or subsidised entertainment or hospitality to non-employees (customers, potential customers and suppliers).

Answer 37

A business can reclaim VAT on employee expenses and entertainment expenses, if those expenses relate to travel and subsistence or where the business entertains **employees only**. If a business entertains both employees and non-employees, the business can reclaim the proportion of VAT that relates to the employees. The exception is that **input tax can be reclaimed in respect of entertaining overseas customers**, but not UK or Isle of Man customers.

Answer 38

The input VAT on the purchase of a car may be claimed if it is used mainly by: - a taxi driver - a driving instructor - a business that is renting out cars for self-drive hire. If a VAT registered business buys a commercial vehicle (such as a van lorry or tractor) and uses it for business purposes, they will usually be able to reclaim the VAT back.

Answer 39

If a VAT registered business pays for fuel, the VAT charged can be dealt with in one of four ways: - if the fuel is used for **business purposes only, reclaim all of the VAT** - if the fuel is used for **both business and private purposes**, reclaim all of the VAT and **pay the appropriate fuel scale charge** (which is dependent on CO2 emissions added to output VAT on VAT returns). - if the fuel is used for **both business and private purposes, reclaim only the VAT that relates to business mileage** proportion of total mileage (accurate mileage records must be kept) - **don't reclaim any VAT**.

Answer 40

VAT that has been paid to HMRC and which has not been received from the customer can be reclaimed as bad debt relief.

Answer 41

The conditions are that: - the debt is **more than six months and less than four years and six months old** - the **debt has been written off in the VAT account** and transferred to a separate bad debt account - the **debt has not been sold or handed to a factoring company** - the business **did not charge more than the normal selling price** for the items. These conditions are included in the Tax Processes for Business reference material.

Answer 42

If the business is entitled to claim bad debt relief, **add the amount of VAT to be reclaimed to the amount of VAT being reclaimed on purchases** (input tax) and put the total figure in **Box 4** of the VAT return (VAT reclaimed in the period on purchases and other inputs).

Answer 43

1. If the turnover of VAT taxable goods and services supplied within the UK in the past 12 months is more than £85,000. 2. If the business expects to go over the VAT threshold of £85,000 in the next 30 days.

Answer 44

1. Standard Rate 2. Reduced Rate 3. Zero Rate 4. Exempt

Answer 45

- these goods and services attract VAT at the current rate of 20%. - they are included in the turnover of VAT taxable goods and services.

Answer 46

- these goods and services attract VAT at the current rate of 5%. - they are included in the turnover of VAT taxable goods and services.

Answer 47

- these goods and services do not attract VAT because the rate is 0%. - however, they are still included in the turnover of VAT taxable goods and services.

Answer 48

- these goods and services do not attract VAT because they are exempt. - they are not included in the turnover of VAT taxable goods and services.

Answer 49

1. The **taxable supplies of a business are zero-rated** and the related purchases are standard-rated. Registration would result in a VAT refund. 2. A business has paid for a **major project**, for example a refurbishment, and has **paid a lot of VAT** in the process. Registration would mean that the VAT incurred could be claimed back. 3. **When a business is first set up** it may initially incur a **lot of costs and little (if any) sales**. Registration would mean that any VAT incurred on the costs could be claimed back.

Answer 50

A VAT registered business may apply to deregister voluntarily for VAT if the turnover of VAT-able goods and services supplied within the UK for the **past 12 months** is below the current deregistration threshold of **£83,000**. The business must notify HMRC of the date that they wish the registration to cease, but the business must continue to charge VAT until it receives confirmation of the cancellation. After cancellation it cannot reclaim VAT on purchases.

Answer 51

Compulsory VAT deregistration will occur in the following instances: - the business ceases or intends to cease to make taxable supplies - the business is sold - the legal status of the business changes, for example a sole trader registers as a limited company. You can apply to transfer a VAT registration if there is a change of business ownership or legal status.

Answer 52

* annual accounts, including statements of profit or loss * bank statements and paying-in slips * cash books and other account books * orders and delivery notes * purchases and sales books * records of daily takings such as till rolls * relevant business correspondence and sales day books.

Answer 53

* **records of all goods and services that are bought and sold** regardless of whether they are taxable or exempt. * copies of **sales invoices** issued **except simplified invoices under £250** (including VAT). * **all purchase invoices including simplified invoices under £250**, (including VAT) * all **credit notes and debit notes** you issue and receive * records of any goods you **export** * **any adjustments**, such as corrections to your accounts or amended VAT invoices * a **VAT account**.

Answer 54

One month and 7 days after the end of the VAT period.

Answer 55

Businesses are eligible to use this scheme if their estimated **taxable turnover is less than £1.35m per annum**. The scheme can be used until the taxable turnover reaches £1.6m per annum. Under the cash accounting scheme **businesses will pay VAT on the amounts received from customers. Input VAT can be claimed on goods and services used once payment has been made**. The due date for payment and submission of the VAT return is the same as the normal rules. Under this scheme **there is no adjustment for bad debts as the VAT has not been paid over in the first place** so this gives automatic relief on bad debts.

Answer 56

Under the normal VAT rules, businesses will **pay VAT quarterly**, regardless of whether the customer has paid. **Input VAT can be claimed on goods and services even if payment has not yet been made**. **The due date** for submitting the VAT return and paying electronically is **one month and seven days** after the end of the VAT period. If the business chooses to allow HMRC to take the payment (if payment is due) by direct debit, then the business has a further three working days before payment is taken, though the due date for the return is unchanged. Under the normal rules, **VAT on bad debts** can only be reclaimed once the debt is **over six months old**.

Answer 57

Businesses are eligible to use this scheme if their **estimated taxable turnover is less than £1.35m per annum**. The scheme can be used until the taxable turnover reaches £1.6m per annum. Under the annual accounting scheme **one VAT return is completed each year, rather than the usual four.** Payments to HMRC are made by **instalments**, based on the previous year’s return. Once the annual return is complete a **balancing payment** is made or a **balancing refund** received. The due date for payment and submission of the VAT return is **two months** after the period end date.

Answer 58

Businesses are eligible to use this scheme if their **taxable turnover is less than £150,000 per annum**. The scheme can be used until the taxable turnover reaches £230,000 per annum. Under the flat rate scheme, the **VAT paid is a fixed percentage of the gross turnover** (after including 20% VAT) of a business. This will **include zero-rated and exempt** sales. For Example, a £100 sale + £20 VAT = £120 gross. The VAT percentage for example 10% is calculated on the £120. The percentage will vary depending on the type of work the business carries out. There will be no claim for input VAT, unless it relates to non-current assets over £2,000 (including VAT). The due date for payment and submission of the VAT return is the same as the normal rules.

Answer 59

If the business is a limited cost business the flat rate percentage is **16.5%**, regardless of the work it carries out. A business is classified as a limited cost business **if its goods cost less than either**: - 2% of its turnover - £1,000 per annum (if costs are higher than 2% of turnover). The due date for payment and submission of the VAT return is the same as the normal rules.

Answer 60

To fix the date of physical supply of services, take the date all the work is completed.

Answer 61

For goods, the time when the goods are considered to be supplied for VAT purposes is the date when one of the following happens. * the supplier sends the goods to the customer. * the customer collects the goods from the supplier. * the goods (which are not either sent or collected) are made available for the customer to use. For example, if the supplier is assembling something on the customer's premises.

Answer 62

If you need to issue a **sales document for goods or services you haven't supplied yet**, you can issue a 'proforma' invoice or a similar document to offer goods or services to customers. A proforma invoice is not a VAT invoice, and you should clearly mark it with the words "**This is not a VAT invoice**". If your potential customer accepts the goods or services you're offering them and if you actually supply them, then you'll need to issue a VAT invoice within the appropriate time limit. **A proforma invoice is not a VAT invoice, so it can't fix the tax point**.

Answer 63

The time of supply, known as the 'tax point', is **the date when a transaction takes place for VAT purposes**. This date is not necessarily the date the supply physically takes place.

Answer 64

If either: * payment is received earlier * invoice is issued earlier. Actual tax point becomes the earlier of these two dates.

Answer 65

If: * invoice is issued within 14 days of despatch/service (and advance payment didn’t apply).

Answer 66

* **deposits are treated separately** to final payment and so may have a different tax point. * the tax point is always the **date of payment** if **cash basis** is being applied. * where services are being supplied on a **continuous basis** over a period in excess of a month but invoices are being issued regularly throughout the period, a **tax point is created every time an invoice is issued or a payment is made**, whichever happens first. * **goods on sale or return** will have a tax point date **either on adoption** (the customer indicates they will keep the goods) **or 12 months after removal of the goods** where this is earlier.

Answer 67

There is a strict time limit on issuing VAT invoices. You must normally issue a VAT invoice (to a VAT-registered customer) **within 30 days of the date you supply** the goods or services - or if you were paid in advance, the date you received payment. This is so your customer can claim back the VAT on the supply, if they're entitled to.

Answer 68

1. where a VAT invoice is issued the tax point is usually the date of issue, provided this is either before, or within 14 days of, the date of supply 2. VAT invoices must be issued within 30 days of whichever is earlier: the date of supply or the date of payment.

Answer 69

There will be two Tax Points.

Answer 70

A VAT invoice **shows certain VAT details of a supply of goods or services**. It can be either in paper or electronic form. An electronic invoice (e-invoice) is only valid if it is in a secure format, for example a “pdf”. **A VAT-registered customer must have a valid VAT invoice from the supplier in order to claim back the VAT they have paid** on the purchase for their business.

Answer 71

* pro-forma invoices * invoices for only zero-rated or exempt supplies * invoices that state 'this is not a VAT invoice' * statements of account * delivery notes * orders * letters, emails or other correspondence. A registered business can't reclaim the VAT it has paid on a purchase by using these documents as proof of payment.

Answer 72

1. Invoice Number, Date and Tax Point. 2. Seller's Name, Address and VAT registration number. 3. Customer's Name and Address. 4. Quantity, Description, Price and VAT Rate. 5. Net and VAT.

Answer 73

If a trade discount is offered, this amount is deducted before the VAT is calculated. If a prompt payment discount is offered, the VAT is calculated on the amount, or consideration, actually paid, irrespective of when payment is actually made.

Answer 74

The latest that a VAT return can be submitted to HMRC is **one month and seven days after the end of the VAT quarter**. It can be submitted earlier if it is ready. The payment sent to HMRC is usually to the same timescale as the submission, that is one month and seven days. The exceptions to this timescale are: * the Annual Accounting Scheme. If a **Direct Debit** has been set up, then HMRC will take the money **three working days after the last submission date**.

Answer 75

Any current errors discovered can be corrected before the VAT Return is submitted. Previous period errors and omissions are also corrected in the current VAT Return subject to certain conditions.

Answer 76

The errors can be corrected in the current VAT Return and not disclosed to HMRC if they are: * **below the reporting threshold** * **not deliberate**. For an accounting period that ended **less than 4 years ago** and where the **net value of the errors** is: - Below £10,000 - Or between **£10,000 - £50,000** and less than **1% of Box 6** then these may only need signing off by your manager.

Answer 77

However, you must disclose (report) the following types of errors: * between £10,000 and £50,000 (and greater than 1% of box 6) * greater than £50,000 * an error you made on purpose (a ‘deliberate error’). You can't make an adjustment to your VAT Return to correct these types of inaccuracies but you must notify HMRC instead. For this magnitude of error, a higher management signature may be needed.

Answer 78

Penalties are charged for any inaccuracies on the VAT Return. The amount is a **percentage of lost revenue** and **the percentage used is based on whether the error was:** * careless and deliberate and whether * disclosure was voluntary or prompted, or deliberately concealed.

Answer 79

1. Reasonable Care = 0% 2. Careless = 0-30% 3. Deliberate = 20-70% 4. Deliberate and Concealed = 30-100%

Answer 80

1. **Reasonable Care** = 0% 2. **Careless** = 15-30% 3. **Deliberate** = 35-70% 4. **Deliberate and Concealed** = 50-100%

Answer 81

Finally, if a VAT Return isn't submitted on time, HMRC will issue a ‘**VAT notice of assessment of tax**’ which will state **how much HMRC thinks is owed**. If HMRC issue an assessment that is too low, a **30% penalty** can be charged for not telling them it is incorrect within **30 days**.

Answer 82

HMRC will communicate any changes in VAT rate in as many ways as possible. These include: * email * letter * television and radio * HMRC website * social media.

Answer 83

Businesses are required to notify HMRC of any changes in their operations that affect their VAT status. For changes in: - name, trading name or address - partnership members - agent's details - business activity. Notification to HMRC must be within 30 days. For changes in bank details 14 days’ notice must be given.

Answer 84

This scheme allows a business to submit **annual, rather than quarterly, VAT returns**. Emphasis should be placed on the **cashflow implications** of this scheme. Monthly amounts will have to be paid to HMRC which may be easier for a small business to manage, but the downside is that **any rebate due will only be sent at the end of the year**, i.e. on receipt of the VAT Return. Note that the estimated amount of VAT due as prescribed by HMRC must be one that the business sees as fair.

Answer 85

Estimated annual turnover less than or equal to **£1.35 million**.

Answer 86

**Amount to be paid** to HMRC, whether monthly or quarterly, is **determined in advance**. This **aids cashflow projections**.

Answer 87

**Any refund due is delayed** as it is calculated on submission of the annual VAT Return.

Answer 88

This scheme allows businesses to **account for the VAT on transactions when they are received or paid, rather than using the tax point dates**. The VAT returns are still submitted quarterly, the same as the normal accounting scheme. Again, if this is the scheme that the business decides to use then application can be through GOV.uk website or by post.

Answer 89

Pay VAT on sales on receipt of monies. Reclaim VAT on purchases when suppliers are paid. No adjustment needed for claiming VAT on irrecoverable debts.

Answer 90

**VAT liability can vary** according to amounts received and paid.

Answer 91

Estimated annual turnover less than or equal to £1.35 million.

Answer 92

Under this scheme, a business calculates its VAT liability by applying a flat rate percentage to its VAT inclusive turnover. Though there's less certainty about the amount of VAT liability due, this scheme **simplifies record keeping and saves small businesses a lot of time**. If the thought of simplified paperwork is attractive to the business, then application can be made through GOV.uk or by post.

Answer 93

Estimated annual turnover less than £150,000

Answer 94

VAT liability is **easy to calculate** as is **based solely on** **income**. Simplifies Record Keeping and saves small businesses a lot of time.

Answer 95

As VAT liability is solely based on income no adjustment can be made if a business’ spend is more than usual.

Answer 96

The FPS **provides HMRC** with all **employee data** relating to their **pay**. The FPS **must be submitted on or before employees pay day**. The **FPS includes payments to and deductions** for all employees.

Answer 97

The EPS is used to inform HMRC that: * no employees were paid in the month * non-regular claims and adjustments are being made (for example, to claim the Employment Allowance). It must be sent to HMRC by the **19th of the following tax month**.

Answer 98

* the FPS was late * the expected amount of FPS’s was not filed * an EPS was not filed.

Answer 99

* the FPS is late but all reported payments on the FPS are within three days of the employees’ payday (unless there is regular lateness) * a new employer is late but sends the first FPS within 30 days of paying an employee * it's a business’s first failure in the tax year to send a report on time.

Answer 100

Late payment penalties apply to late payments and payments of less than is due. The first failure to pay in a tax year doesn't count as a default.

Answer 101

5% of Unpaid Tax

Answer 102

A further 5% of Unpaid Tax

Answer 103

A business must register **before the first payday** as it can take up to **15 working days** to get an employer PAYE reference number. A business **cannot register more than two months before employing anyone.**

Answer 104

If a business employs **fewer than ten employees it can use HMRC's basic PAYE tools** to calculate payroll, which is free. **More than ten employees a business must use a ‘paid-for software'** that has been tested and recognised by HMRC. HMRC has lists of payroll software that is valid but does not recommend any particular one.

Answer 105

Records need to be kept for **three years from the end of the tax year** they relate to.

Answer 106

* gross pay and deductions made * reports submitted to HMRC * payments made to HMRC * employee leave and sickness absences * taxable expenses or benefits * Payroll Giving Scheme documents, including the agency contract and employee authorisation forms.

Answer 107

The main reports sent to HMRC are the Full Payment Submission (FPS) and the Employer Payment Summary (EPS).

Answer 108

The FPS provides HMRC with all employee data relating to their pay. The FPS must be submitted electronically by RTI (Real Time Information) on or before the employees' pay day. The FPS includes payments to and deductions for all employees.

Answer 109

The EPS is used to inform HMRC that: * no employees were paid in the month * non-regular claims and adjustments are being made. It must be sent to HMRC by the 19th of the following tax month.

Answer 110

HMRC doesn’t dictate when employees are paid, just that they’re **paid the correct amount and on time** according to their contract. HMRC does however rule that **payment of the statutory deductions made be paid by the 22nd of the following month**, or, if making a non-electronic payment, by the 19th of the following month.

Answer 111

22 July if paying electronically. 19 July otherwise.

Answer 112

22 October if paying electronically. 19 October otherwise.

Answer 113

* basic pay * overtime * commission * bonus * any allowances.

Answer 114

Taxable pay is **gross pay minus personal allowance** (PA). (Personal Allowance is the amount that an individual is allowed to earn before tax is taken away).

Answer 115

Taxable gross pay is **gross pay minus any tax-free elements**, such as: * payroll giving donation * employee **pension** contributions. **Taxable gross pay is the figure on which the employee will pay income tax.**

Answer 116

Net pay is the figure paid to the employee **after all statutory deductions and non-statutory deductions** have been made.

Answer 117

HMRC rules require businesses to make statutory deductions such as: * tax * National Insurance Contributions (NICs) * pension contributions * student loan payments and pay them to the relevant authorities within given timescales.

Answer 118

Businesses may also be required to make non-statutory deductions. Examples of non-statutory deductions are: * payroll giving * interest free loan made to the employee by the employer * other deductions authorised by the employee.

Answer 119

This is the most regular, and most recognised document. Employers are required to show: * **earnings** before and after any deductions * the amount of **any deductions that may change each pay period**, for example tax, National Insurance and student loans * the **number of hours worked if pay varies depending on time worked**. Employers **must also explain any deductions**, for example payroll giving and any repayment of a season ticket loan, but these can be shown either on a payslip, or in a separate written statement. This is **issued to the employee on or before every payday**.

Answer 120

A P45 is a tax form **issued by HMRC** but completed by the employer **when an employee leaves employment**. The form contains information such as: * personal details * leaving date * tax code * gross salary * tax deducted. The P45 **relates to just the current tax year**, not the whole time the individual was in that employment. This must be issued to the employee on leaving or the pay day immediately after.

Answer 121

A P60 is a **statement outlining the tax and National Insurance (NI) contributions that have been deducted** from an employee’s pay over the tax year (6 April–5 April). A P60 **must be issued to every employee** that is employed **at the end of the tax year**. The latest date of issue is 31 May following the end of that tax year.

Answer 122

A P11D form outlines the cash value of any work-related **taxable expenses and taxable benefits** an employee has received over the tax year (6 April–5 April). The benefits or expenses included are **those that have not already been included in an employee’s wages**. The deadline to issue the P11D to both employees and HMRC is **6th July** every year.

Answer 123

The rules on protecting employment data are set out in the Data Protection Act 2018 (the DPA). “**Employees should be informed of what data is collected about them and what is done with it in a Fair Processing Statement, also known as a Privacy Notice**.”

Answer 124

* Name, Age, Address etc. Plus: * credit card number * location-based data (web address, IP (Internet Protocol) address, cookie data) * health * ‘sensitive data’ (race, ethnicity, religious beliefs, trade union membership, genetic and biometric data).

Answer 125

* what personal data we process is held and why * the lawful basis for processing personal data * how long that personal data will be held * who the data is shared with * if any external data processors (payroll agency) is used * employee rights in relation to data processing * any transfers of personal data.

Answer 126

* to be told what is held and why * of access * to rectify any errors * to tell the business to erase the information * to restrict processing * to data portability * to object * in relation to automated decision making and profiling.

Answer 127

Records you must keep include: * business name, address and VAT registration number * any VAT accounting schemes used * copies of all invoices you issue * all invoices and receipts you receive (originals or electronic copies) * debit or credit notes * import and export records * a VAT account * bank statements, cash books, cheque stubs, paying-in slips and till rolls.

Answer 128

All records relating to VAT should be kept for at least six years.

Answer 129

Most VAT registered businesses are **required to keep their VAT records digitally**, under the Making Tax Digital (MTD) rules. A business can apply for an exemption if they cannot reasonably or practically use computers, software or the internet, but this is rare.

Answer 130

Electronic invoicing is the **transmission and storage of invoices in an electronic format** without duplicate paper documents and can be submitted in various formats.

Answer 131

* speed of delivery * security of electronic environment * easier access for auditing * decreased reliance on storage and handling costs * rapid access and retrieval * improved cash flow.

Answer 132

Making Tax Digital (MTD) is the government’s first major step in **digitalising tax**. The aim is two-fold: * to make tax administration **more efficient** * to **help businesses manage their day to day finances** better.

Answer 133

6 April to 5 April

Answer 134

Up to £3000

Answer 135

The 5th of each month

Answer 136

If the amount owed is less than £1500

Answer 137

The standard scheme requires **four returns** to be made every year. The **VAT is either payable or refunded quarterly** and is **based on the tax point of transactions** to determine which tax period sales and purchases belong in.

Answer 138

The cash accounting scheme requires **quarterly returns** and **payment/refunds in the same way as the standard scheme**. However, **the date that a transaction goes in or out of the bank account is used to determine which tax period sales and purchases belong in, not the tax point**. This means that **automatic bad debt relief** is given, because if a customer never pays an invoice then the business never has to pay the VAT to HMRC. Can be used in conjunction with the Annual Accounting Scheme.

Answer 139

The flat rate scheme simplifies VAT accounting by **applying an industry standard percentage to the total VAT-inclusive turnover** of a business in order to calculate its VAT payments to HMRC. However, **a limited cost business has a flat rate of 16.5%**, regardless of the industry. This means input and output tax is not offset as it is in the other schemes, and does not have to be separately recorded, so the scheme can save businesses time and smooth cashflow.

Answer 140

The annual accounting scheme only requires **one VAT return per year**. Payments, based on the previous year’s liability, are made in **nine interim monthly instalments**. Once the annual return has been submitted a **balance payment or refund is made**. The annual accounting scheme **cuts down on paperwork** and helps manage cashflow.

Answer 141

Penalty Point Threshold = 2 Points Period of Compliance = 24 months

Answer 142

Penalty Point Threshold = 4 Points Period of Compliance = 12 months

Answer 143

Each point automatically expires **two years** from the first day of the month after the month when the late submission occurred.

Answer 144

All points will be reset to zero if **both conditions** below are met: - **a period of compliance** (meeting all submission obligations on time for the period of compliance), and - **all submissions due in the preceding 24 months have been made** (whether or not they were on time).

Answer 145

VAT due on sales and other outputs

Answer 146

**VAT due on acquisitions** from other EC member states

Answer 147

**Total VAT due** (sum of boxes 1 and 2)

Answer 148

**VAT reclaimed on purchases and other inputs** (including acquisitions from EC)

Answer 149

Net VAT to be paid or reclaimed

Answer 150

Total value of sales and all other outputs (excluding VAT)

Answer 151

Total value of purchases and all other inputs (excluding VAT)

Answer 152

Total **value of all supplies of goods** and related costs to other EC member states (excluding VAT)

Answer 153

**Total value of acquisitions** of goods and related costs from other EC member states (excluding VAT)

Tax Processes Flashcards

(192 cards)