Cta - Vat 2

Front 1

Name 6 accounting schemes for VAT

Back 1

Cash accounting

Annual accounting

Flat-rate scheme

Flat-rate scheme for farmers

Second-hand schemes

Retail schemes

Front 2

Describe the cash accounting scheme

Back 2

1) time of supply based on date cash is paid / received

2) conditions to join:

- taxable supplies in next 12m VAT period <£1.35m

- not convicted of VAT offence in last 12m

- all returns up to date and outstanding VAT paid

- no withdrawn permission to use the scheme in last 12m

3) Must leave scheme if turnover >£1.6m in the 12m to the end of a VAT accounting period

Front 3

What are the advantages of the cash accounting scheme?

Back 3

1) automatic bad debt relief

2) simpler - no cut off issues

3) cash flow where debtors pay late - don't pay VAT until receive payment from debtor.

Front 4

Describe the annual accounting scheme.

Back 4

1) one VAT return for whole year

2) pay 90% of estimated annual liabilitiy in 9 monthly direct debits - starting on the last day of month 4 of the VAT year.

3) Balancing payment and return due 2 months after end of VAT year.

4) Conditions to join:

- taxable supplies in next 12m VAT period <£1.35

- Not a member of a VAT group

- No outstanding VAT liabilities

- Trader not ceased to use the scheme in past 12 m

5) Must leave the scheme if:

- turnover exceeds £1.6m in VAT year

- trader believes turnover WILL exceed £1.6m (notify HMRC and leave)

- death / insolvency / ceasing to trade of the trader.

Front 5

What are the benefits of the annual accounting scheme?

Back 5

cashflow certainty - 9m direct debit amounts are set in advance

Only one return (less risk of penalties for late filing and less admin filling in returns)

Can be used in conjunction with cash / flat rate / retail accounting

Front 6

Describe the flat rate accounting scheme.

Back 6

VAT due is calculated as VAT inclusive income (i.e. total turnover, excluding exempt turnover, grossed up by 1.2 to include VAT), multiplied by the flat rate percentage (% depends on industry).

Normal VAT invoices are issued for sales.

VAT on purchases generally not recoverable (as already reflected in lower flat rate %).

- BUT - VAT on fixed assets costing >£2k (inc VAT) = still recoverable.

Conditions for joining:

- reasonable to believe taxable supplies (excl VAT) in the next year do not exceed £150k

- not convicted of VAT offence in past 12m

- trader not ceased to use the scheme within past 12m

Conditions when must leave (test done on every anniversary date of joining the scheme):

- if total VAT inclusive income exceeds £230k (or is likely to in next 30 days)
--- UNLESS - rise is due to one-off transaction and income is likely to drop below £191,500 the following year.

Front 7

What issues for accounting and bad debt relief apply to the flat rate scheme?

Back 7

Accounting:

- turnover is recorded VAT inclusive, less VAT paid to HMRC

- expenses are shown VAT inclusive (as input VAT is not recovered)

Bad debt relief:

- claim made using normal VAT fraction (i.e. 1/6), NOT the flat rate amount paid to HMRC on the sale.

Front 8

What is the flat rate scheme for limited cost traders?

Back 8

New from 1 April 17

A trader will qualify as a limited cost trader if their VAT inclusive expenditure on relevant goods* is either:

1) < 2% of their flat rate turnover in a prescribed accounting period; or

2) > 2% of their flat rate turnover BUT < £1,000 per annum if the prescribed accounting period is one year (and pro-rated for short periods).

*Relevant goods = includes any goods supplied, acquired from another EU member state or imported where exclusive ownership of the goods transfers to the purchaser.

- qualifying trader can use 16.5% flat rate.

Front 9

Describe the flat rate scheme for farmers.

Back 9

OPTIONAL for any farmer engaged in a "designated activity"

- Aimed at simplifying VAT for farmers - removes requirement to register for VAT and complete VAT returns.

- Normally supplies of food will be zero rated (so farmers would have high VAT recovery rate).

Under the scheme - VAT of 4% is charged on certain sales by farmers to VAT registered customers.

- Farmer retains the 4% to compensate for not being able to recover input VAT.

- Customers are able to recover the 4% input VAT as normal.

Front 10

Describe the second hand goods scheme.

Back 10

Optional scheme aimed at traders who typically buy goods to sell from unregistered people, and so are not charged input tax on their purchases.

- Covers virtually all second hand goods

Trader only pays output VAT on the profit margin (i.e. sales price - purchase price).

- profit margin deemed to be VAT inclusive, so output VAT = profit margin x 1/6

- no output VAT due if sale made at a loss (as no profit margin).

VAT invoices are not issued so customers cannot recover any input VAT.

Front 11

Why are retail accounting schemes used? What 5 types are there?

Back 11

Retail schemes are a way of simplifying the normal VAT rules for retialers who have a large volume of small value transactions.

Types (all are optional):

- point of sale scheme

- apportionment scheme 1

- apportionment scheme 2

- direct calculation scheme 1

- direct calculation scheme 2

Front 12

\describe the point of sale retail scheme.

Back 12

Used if either:

- all sales are made at the same VAT rate; or

- a computerised till is used that can record the different types of sale (i.e. tesco)

Only difference to normal VAT rules is not having to record each individual sale - just give totals for each type (i.e. exempt / standard rated) - output VAT is based on these totals.

- Recover input VAT as normal

Front 13

Describe the apportionment scheme 1.

Back 13

The proportion of standard / reduced rated purchases each quarter (inc. VAT) in relation to total goods purchased (inc. VAT) is used to estimate the proportion of sales that are standard / reduced rated - and hence estimate output tax due.

- As calculation is an estimate each quarter - VAT is recalculated at the end of the year as a whole and an annual adjustment is made.

- Available to retailers whose VAT exclusive sales are up to £1m p/a

Front 14

Describe the apportionment scheme 2.

Back 14

Calculation is based on the expected selling price (inc VAT) (ESP) of the goods acquired for resale in the last 12m.

proportion of the ESP of standard/reduced rated purchases in relation to the EPS of total goods purchased in the last 12m is used to estimate the proportion of sales that are standard / reduced rated and hence estimates output tax due.

This fraction is for a rolling 12 month period so no annual adjustment is required

available to retailers with supplies not exceeding £130m.

Front 15

Describe the direct calculation scheme 1

Back 15

Purchases with the lower expected selling price (minority goods) are either:

- deducted from sales to give std-rated (if 0-rated)

- treated as the std rated sales (if std-rated)

No annual adjustment / stock adjustment made

- If supplying goods at all 3 rates (std, reduced, 0) then reduced rated supplies are always assumed to be the second minority goods.

- Available to retailers with turnover < £1m p/a.

Front 16

Describe the direct calculation scheme 2.

Back 16

Similar to Direct calculation scheme 1 - with a few changes:

- there is an annual adjustment using the whole year's totals - performed at the end of each year.

- there is a stock adjustment where opening stock is added and closing stock is deducted from goods received in the year.

- Available to retailers with turnover < £130m p/a.