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Business Taxation Presentation MS 3255. Value Added Tax. Mohd Sahlan bin Suhaimi (07B1706) Ak Mohd Aliuddin bin Pg Hj Ramlee (08B1934) Siti Nurul Hazimah binti Senudin (08B1737) Nuranisah binti Metusin (08B1919) Nur Sabrina binti Roslan (08B1929) Nurul Jannah binti Hj Alim (08B1933). - PowerPoint PPT Presentation
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Mohd Sahlan bin Suhaimi (07B1706)Ak Mohd Aliuddin bin Pg Hj Ramlee
(08B1934)Siti Nurul Hazimah binti Senudin
(08B1737)Nuranisah binti Metusin (08B1919)Nur Sabrina binti Roslan (08B1929)
Nurul Jannah binti Hj Alim (08B1933)
Business Taxation Presentation
MS 3255
OutlineIntroduction –
Definition of VATThe scope and
nature of VATTypes of supplyVAT registration
compulsory Voluntary
registration Recovery of pre
registration input
DeregistrationVAT on sale of a
businessThe time of supplyThe value of a
supply Recovery of input
VATRelief for impaired
debtsExample
What is VAT?An indirect tax
Charged on most goods and services, supplied within the UK
is borne by the final consumer
VAT is a tax that's charged on most goods and services that VAT-
registered businesses provide in the UK. It's also charged on goods and some services that are imported
from countries outside the European Union (EU), and brought into the UK
from other EU countries.
In other words….
A type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale.
The amount of VAT that the user pays is the cost of the product less any of the costs of materials used in the product that have already been taxed.
The scope and nature of VATThree essentials needed before VAT
can be charged Taxable personTaxable supply Business
Taxable person- One who is or should be registered for
VAT
Taxable supply- Everything which is not exempt or
outside the scope of VAT
Business- It must be made in the course of
furtherance of a business carried on by a taxable person.
Input and output VAT
Input VAT Output VATBusinesses pay
input VAT on their purchases of goods and services.
Reclaimable from HMRC.
Registered businesses charge output VAT on their sales of taxable goods and services.
Payable to HMRC.
Types of supplySupplies can be taxable, exempt or
outside the scope of VAT.VAT is charged on taxable
supplies but NOT on exempt or supplies which are outside the scope of VAT.
Only taxable supplies are taken into account in determining whether a trader needs to register for VAT.
Items not covered by VAT
Exempt supplies
Outside the scope of VAT
Exempt itemsinsuranceproviding crediteducation and training, if certain conditions are
metfundraising events by charities, if certain
conditions are metmembership subscriptions, if certain conditions
are met most services provided by doctors and dentistsfinance: this includes wide range of financial
services, such as making loans, hire purchases etc.
Outside the scope of VATThere are some things that aren't in the UK
VAT system at all – (outside the scope of VAT). They are not taxable supplies and no VAT is charged on them.
Examples:non-business activities like a hobby - for
example, you might sell some stamps from your collection
fees that are fixed by law - known as 'statutory fees' - for example the congestion charge
Rates of VATTaxable supplies are charged to VAT at
onf of three rates:
- Zero rate – 0%- Standard rate - 17.5% (default rate)- Reduce rate – 5%
Examples of reduced-rated itemsdomestic fuel and powerinstalling energy-saving materialssanitary hygiene productschildren's car seats
Examples of zero-rated itemsfood - but not meals in restaurants ,
hot takeaways or classed as luxury items.
books and other printed matter. (e.g. newspapers, books and maps).
children's clothes and shoespublic transport.
The difference between exempt and zero-rated
Traders making exempt supplies cannot charge VAT to their customers.
Traders making zero-rated supplies charge VAT but at 0%.
The key difference is that traders making zero-rated supplies can reclaim the input tax they suffer, those making exempt supplies cannot.
VAT registrationcompulsory to register if taxable supplies
exceeds the registration limits.TESTS
FUTURE PROSPECT
HISTORIC TURNOVER
Cumulative total for the last 12 month exceeds the registration limits of £68,000
•Notify HMRC within 30 days when it exceeds.•Registration is effective from end of month
•Notify HMRC before the end of 30 days.•Registration is effective from the beginning of the 30 days
Taxable supplies for the next 30 days in isolation are expected to exceed £68,000.
CONSEQUENCES OF REGISTRATION
Once registered, a taxable person must start accounting on VAT:
Output tax must be charged on the taxable supplies.
Each registration trader is allocated a VAT registration number.
Each registered trader is allocated a tax period for filling returns.
Input tax is recoverable on business purchases and expenses.
Appropriate VAT records must be maintained.
NUMBER OF REGISTRATION
A person can be registered only once.Where a partnership is concerned, separate
business carried by the same partners, will have single registration.
VOLUNTARY REGISTRATION
ADVANTAGES DISADVANTAGES
Avoids penalties for late registration.
Can recover input VAT on purchases.
Can disguise the small size of the business.
Business will suffer the burden of compliance with all VAT administration rules.
Business must charge VAT. This makes their goods comparatively more expensive than other unregistered business.
RECOVERY OF PRE-REGISTRATION INPUT VAT
VAT incurred before registration cannot be accounted for as input VAT. If these conditions applied, then it can be treated as input tax and can be reclaimed.
• The goods must be acquired for business purposes and should not be sold or consumed prior to registration.• The goods have not been acquired more than three years prior to registration.
• The services must be supplied for business purposes.
• The services should not have been supplied more than six months prior to registration.
GOODS SERVICES
DeregistrationA person must deregister when he ceases to make taxable supplies:
• notify HMRC within 30 days of ceasing to make taxable supplies.
•VAT registration is cancelled from the date of cessation or a mutually agreed later date.
A person may voluntarily deregister even if the business continues and if there is evidence that taxable supplies in the next 12 months will not exceed £66,000:
• starting at any time.
•The onus is on the trader to satisfy HMRC that they qualify.
•VAT registration is cancelled from the date of request or an agreed later date.
Effect of deregistration
VAT output tax must be accounted for on the value of fixed assets and stocks held at the date of deregistration, on which a deduction for input tax has been claimed.
The final tax liability is waived if it is ≤ £1,000.
VAT on sale of Business
Sale of business
Normal taxable supply
Transfer of a going concern
Outside the scope of VAT if
conditions met
Charge output VAT
on sale price
Transfer of registration
Both the transferor and the transferee may make a joint election, for the transferor’s registration to be transferred to the transferee.
The transferee assumes all rights and obligations in respect of the registration, including the liability to pay any outstanding VAT.
The tax point it also known as time of supply
to identify the quarter in which it falls.
change in VAT standard rate or change in classification of a supply, necessary to know whether a supply had been made before or after the date of change.
Special rules for certain supplies of goods :
Goods on sale or return : when the sale is adopted by the customer, or 12
months after dispatch of the goods. Continuous supplies : the earlier of a tax invoice being issued and a
payment received. Sales under hire purchase : when the goods are collected, delivered or
made available.
The value of supply normally the price (before VAT) charged by supplier.
VAT fraction for standard – rated goods : VAT exclusive amount refer to the price of
goods before VAT. VAT is 15% or 17.5% of the VAT exclusive
amount.
VAT inclusive amount refer to the price of goods includes VAT.
VAT is (15/115) or (17.5/117.5) of the gross amount.
Discounts : VAT must be calculate as if the
maximum discount available was taken.
Goods for own use : VAT must be accounted for on
the replacement value of the supplies.
Gifts : Gifts of stock or fixed assets are
treated at replacement value.
Recovery of input VATRecoverable by taxable persons on
goods and services which are supplied to them for business purposes.
Irrecoverable under condition of:Business entertainingCars, unless they are 100% used for
business purpose.
Example: £5400 on business entertaining and
£2400 on staff entertaining
No VAT recoverable on business entertaining
VAT inclusive figure is £6210 ( £5400 + 15% of £5400)
charged against profit
staff entertaining will be recoverable of £360 ( 15% of £2400)
VAT exclusive amounted of £2400 will be charged against profit.
Motor expenses can recover input VAT incurred in the
running cost of a car examples are fuel and repairs.
Business pays for all fuel costs and can recover all input VAT
If there is some private use of the car
Driver reimburses business the full cost for fuel for private journeys
Driver does not reimburse business the full cost of fuel for private journeys.
Output VAT is payable on the amount reimbursed
Output VAT is payable on a scale charge
Scale charge depends on the with CO2 emissions of the car.
Relief for impaired debtsVAT output tax is accounted for when
an invoice is issued.
Sales irrecoverable ; Seller has paid VAT to HRMC.And never recover VAT from the
customer.Thus, sellers are able to claim VAT
bad debt relief.
Conditions:At least six months must have elapsed
since payment from the debtor was due.The debt must have been written off in
the seller’s VAT account.Relief is obtained by adding the VAT
element of the bad debt to the input tax claimed.
Claims for bad debt relief are subjected to a three- year time limit.
Comprehensive ExampleDynamo Ltd commenced trading as a
wholesaler on 1 November 2009. Its sales have been as follows:
The company’s sales are all standard-rated, and the above figures are exclusive of VAT.
£ £
2009 Nov 3,500 2010 June 4,800
Dec 4,100 Jul 4,600
2010 Jan 4,600 Aug 5,400
Feb 4,400 Sept 5,900
Mar 3,800 Oct 7,800
Apr 4,000 Nov 9,100
May 4,200 Dec 10,100
RULE: Excess £68,000 in taxable supplies during any 12-month period, will result in compulsory registration.
CALCULATION : Taxable supplies 1st January 2010 – 31st December 2010 - £68,700.
ACTIONS : Notify HMRC before 1st February 2011 (30 days after the end of the period)
The company will be registered from 1st February 2011 or an agreed earlier date.
£ £
2009 Nov 3,500 2010 June 4,800
Dec 4,100 Jul 4,600
2010 Jan 4,600 Aug 5,400
Feb 4,400 Sept 5,900
Mar 3,800 Oct 7,800
Apr 4,000 Nov 9,100
May 4,200 Dec 10,100
NO Questions?