Osborne Books Tutor Zone Indirect Tax Finance Act 2014 Chapter activities Osborne Books Limited, 2014
2 i n d i r e c t t a x ( F i n a n c e A c t 2 0 1 4 ) t u t o r z o n e 1 Introduction to Value Added Tax 1.1 Complete the following sentence by selecting the correct words from the options given. On a business s VAT Return VAT paid to a supplier on a purchase invoice is known as input / output tax and VAT paid by a customer on a sales invoice is treated as input / output tax. 1.2 A credit note is issued by a business to one of its customers for taxable supplies that included standard rate VAT. What will be the effect of this credit note on the VAT due to be paid by this business to HM Revenue & Customs? (a) (b) (c) It will increase the amount of VAT due to be paid It will decrease the amount of VAT due to be paid It will have no effect on the VAT payable by the business Which option is correct? 1.3 A VAT-registered business receives a credit note from one of its suppliers. The credit note is for 470 plus VAT at 20%; it relates to an original invoice of 4,700 plus VAT at 20%. What will be the effect on the VAT due to be paid by this business to HM Revenue & Customs? (a) It will increase the VAT payable by 94 (b) It will decrease the VAT payable by 94 (c) It will increase the VAT payable by 846 (d) It will decrease the VAT payable by 846 Which option is correct?
c h a p t e r a c t i v i t i e s 3 1.4 A wholesaler buys goods from a manufacturer for 2,500 plus VAT of 500. It then sells them to a retailer for 4,850 plus VAT of 970. The retailer sells them to his customers for 7,000 plus VAT of 1,400. How is the total VAT of 1,400 paid to HM Revenue & Customs? Indicate which party will pay all or part of the amount due. VAT Amount Manufacturer Wholesaler Retailer 430 470 500 970 1,400 1.5 For each of the following items decide what rate of VAT will be charged. Standard rate Reduced rate Zero rate Exempt Gambling Newspapers Chocolate Telephone calls Dental care Train fares Funeral services Domestic electricity
4 i n d i r e c t t a x ( F i n a n c e A c t 2 0 1 4 ) t u t o r z o n e 1.6 Which of the following is a likely reason for a business with annual turnover that is under the VAT-registration limit to choose to voluntarily register for VAT? (a) (b) (c) It supplies standard-rated products and the majority of its purchases are zero-rated It supplies zero-rated products and the majority of its purchases are standard-rated The owner of the business is winding the business down prior to retiring (d) The business only supplies products that are exempt from VAT Which option is correct?
c h a p t e r a c t i v i t i e s 5 2 VAT and business documents 2.1 Decide whether the following statement is true or false. A business that has been issued with a pro-forma invoice can use this to claim back the VAT. TRUE / FALSE 2.2 Claude runs a stationery supply shop. He buys 300 printer cartridges from the wholesaler for 5.40 each including VAT. How much VAT will be included on the invoice from the wholesaler? (a) 0.90 (b) 1.08 (c) 270 (d) 324 2.3 Maxwell is an electrician preparing an invoice for a customer for standard-rated goods and services (standard rate is 20%). The customer is entitled to an 8% trade discount and a settlement discount of an additional 2% if the invoice is paid within 14 days. The list price of the goods is 970. What is the total VAT to be shown on the invoice? (a) 194 (b) 190.12 (c) 178.48 (d) 174.91
6 i n d i r e c t t a x ( F i n a n c e A c t 2 0 1 4 ) t u t o r z o n e 2.4 The business that you work for receives an invoice for 572.16, which includes VAT at 20%. What is the net amount of the invoice, and the VAT included? (a) Net invoice amount is 572.16 and the VAT included is 114.43 (b) Net invoice amount is 572.16 and the VAT included is 143.04 (c) Net invoice amount is 457.73 and the VAT included is 114.43 (d) Net invoice amount is 476.80 and the VAT included is 95.36 2.5 Carol is the proprietor of a VAT-registered business. On 23 August she receives an order from a customer for standard VAT rated goods. She delivers the goods to the customer on 26 August and issues an invoice on 28 August. The customer paid the invoice on 6 October. What is the tax point for this invoice? (a) (b) (c) (d) 23 August 26 August 28 August 6 October 2.6 A UK supplier sells goods or services to a customer within the European Union (EU) that is registered for VAT. In this situation decide which of the following statements is correct. (a) (b) (c) (d) The UK supplier must charge VAT at standard rate The UK supplier must charge VAT at reduced rate The UK supplier can usually zero-rate the VAT charge The supply to this EU customer is exempt from VAT
c h a p t e r a c t i v i t i e s 7 3 Inputs and outputs and special schemes 3.1 Tony runs a business that is partially exempt from VAT. This means that Tony s business supplies which of the following? (a) (b) (c) (d) Some goods that are reduced-rated and some that are standard-rated Some goods that are exempt and some that are standard-rated Some goods that are reduced-rated and some that are zero-rated Only goods that are exempt 3.2 A business has made supplies worth 276,000 in a VAT quarter. Out of this 55,200 were VATable supplies and the remainder was VAT exempt. What proportion of the residual input VAT can be claimed back on the business s VAT Return? (a) 0% (b) 20% (c) 80% (d) 100%
8 i n d i r e c t t a x ( F i n a n c e A c t 2 0 1 4 ) t u t o r z o n e 3.3 Adam Arthurson runs a VAT-registered business that only supplies standard-rated services. Adam s wife Jeanette is preparing the quarterly VAT Return. She has a query over three invoices which all include standard rate VAT at 20%: 260 for carpet for the office; 195 for client entertaining and 9,000 for a second hand delivery van. What is the total VAT that Adam Arthurson s business can claim for these invoices on its VAT Return? (a) 75.83 (b) 1,532.50 (c) 1,543.33 (d) 1,575.83 3.4 The following situation applies to a business operating one of the special accounting schemes available in the UK: Annual taxable turnover of 1,100,000 Quarterly VAT Returns are submitted Reclaiming VAT on bad debts is not an issue for this business Which of the following schemes is being used? (a) (b) (c) Flat rate accounting scheme Cash accounting scheme Annual accounting scheme
c h a p t e r a c t i v i t i e s 9 3.5 Ophelia is registered for the Flat Rate VAT scheme and the flat rate for her business is 6.5%. In the last quarter Ophelia made the following sales and purchases. Standard-rated sales (including VAT at 20%) 35,244 Zero-rated sales 1,241 Purchases (including VAT at 20%) 17,040 What is the VAT payable by Ophelia s business for the quarter? (a) 2,371.52 (b) 2,290.86 (c) 1,263.92 (d) 1,107.60 3.6 HMRC operates three special schemes for VAT. For each of the following points decide which scheme(s) to which it relates. Tick all that apply. VAT is accounted for when payment is received or made Annual taxable turnover must be 150,000 or less May be operated with the annual accounting scheme VAT Return submitted once every 12 months No requirement to record the VAT charged on every sale Annual Cash Flat rate accounting accounting scheme scheme scheme Provides automatic bad debt relief VAT payment can be made in nine equal monthly instalments VAT is due for payment two months after the end of the VAT period
1 0 i n d i r e c t t a x ( F i n a n c e A c t 2 0 1 4 ) t u t o r z o n e 4 The VAT Return 4.1 Kelsey has completed her VAT Return for the quarter ended 30 April. The figure in Box 3 is 19,247 and the figure in Box 4 is 10,866. This will result in which of the following? (a) Kelsey will reclaim 10,866 from HMRC (b) Kelsey will have to pay HMRC 19,427 (c) Kelsey will reclaim 8,381 from HMRC (d) Kelsey will have to pay HMRC 8,381 Which option is correct? 4.2 Seesaw Ltd has now discovered a genuine error in its VAT records from an earlier VAT quarter. An invoice it received dated 12 February 20X4 was issued by a supplier showing input tax of 245.60 however, the figure was recorded by Seesaw Ltd as 24.56. The VAT due for the quarter ended 31 August 20X4 has been calculated as 17,143.20. What will be the final figure for VAT due on Seesaw Ltd s VAT Return for the quarter ended 31 August 20X4? 4.3 Articus Ltd has discovered that one of its customers that owes it 9,654.54 including standard rate VAT has now gone into liquidation and consequently it will not receive any of the money owed. The invoice is over 6 months old and Articus Ltd has no choice but to write off the debt. How much bad debt relief can Articus Ltd claim for this on its next VAT Return? (a) 9,654.54 (b) 1,930.90 (c) 1,609.09 (d) None
c h a p t e r a c t i v i t i e s 1 1 4.4 This question is about completing an online VAT Return for a business for the quarter ended 31 March 20X3. The following accounts have been extracted from its ledgers: Sales account Date Reference Debit Date Reference Credit 20X3 20X3 31/03 Balance c/d 356,078.65 01/01 Sales day-book 31/03 UK sales 329,987.26 01/01 Sales day-book 31/03 exports 26,091.39 Total 356,078.65 Total 356,078.65 Purchases account Date Reference Debit Date Reference Credit 20X3 20X3 01/01 Purchases day-book 31/03 Balance c/d 130,921.75-31/03 UK purchases 107,081.83 01/01 Purchases day-book -31/03 EU acquisition 23,839.92 Total 130,921.75 Total 130,921.75 VAT account Date Reference Debit Date Reference Credit 20X3 20X3 01/01 Purchases day-book 01/01 Sales day-book -31/03 UK purchases 21,416.36-31/03 UK sales 65,997.45 You are told that the VAT on EU acquisitions is 4,767.98 Complete boxes 1 to 9 of the online VAT Return for the quarter ended 31 March 20X3.
1 2 i n d i r e c t t a x ( F i n a n c e A c t 2 0 1 4 ) t u t o r z o n e Online VAT Return for period ended 31 March 20X3 VAT due in this period on sales and other outputs Box 1 VAT due in this period on acquisitions from other EC Member Box 2 States Total VAT due (the sum of boxes 1 and 2) Box 3 VAT reclaimed in the period on purchases and other inputs, including acquisitions from the EC Net VAT to be paid to HMRC or reclaimed by you. (Difference between boxes 3 and 4.) (If Box 4 is greater than Box 3, use a minus sign.) Total value of sales and all other outputs excluding any VAT. Include your box 8 figure. WHOLE POUNDS ONLY Total value of purchases and all other inputs excluding any VAT. Include your box 9 figure. WHOLE POUNDS ONLY Box 4 Box 5 Box 6 Box 7 Total value of all supplies of goods and related costs, excluding any VAT, to other EC Member States. WHOLE POUNDS ONLY Box 8 Total value of all acquisitions of goods and related costs, excluding Box 9 any VAT, from other EC Member States. WHOLE POUNDS ONLY
c h a p t e r a c t i v i t i e s 1 3 4.5 This question is about preparing figures for a business s online VAT Return for the quarter ended 28 February 20X2. The standard rate of VAT is 20%. The following accounts have been extracted from the ledgers: Sales account Date Reference Debit Date Reference Credit 20X2 20X2 28/02 Balance c/d 433,479.60 01/12 Sales day-book 28/02 UK sales 268,866.00 01/12 Sales day-book 28/02 exports 60,480.00 01/12 Cash-book 28/02 UK sales 104,133.60 Total 433,479.60 Total 433,479.60 Purchases account Date Reference Debit Date Reference Credit 20X2 20X2 01/12 Purchases day-book 28/02 Balance c/d 181,282.32-28/02 UK purchases 157,306.32 01/12 Purchases day-book -28/02 zero-rated imports 23,976.00 Total 181,282.32 Total 181,282.32 VAT account Date Reference Debit Date Reference Credit 20X2 20X2 01/12 Purchases day-book 01/12 Sales day-book -28/02 UK purchases 31,461.26 28/02 UK sales 53,773.20 01/12 Cash-book 28/02 UK sales 20,826.72 You are told that bad debt relief on a sales invoice for 1,457.28 including VAT is to be claimed in this quarter.
1 4 i n d i r e c t t a x ( F i n a n c e A c t 2 0 1 4 ) t u t o r z o n e (a) Calculate the figure to be claimed as bad debt relief on the VAT Return. (b) Calculate the figure for Box 1 of the VAT Return VAT due on sales and other outputs. (c) Calculate the figure for Box 4 of the VAT Return VAT reclaimed on purchases and other inputs, including acquisitions from the EC.
c h a p t e r a c t i v i t i e s 1 5 4.6 This question is about completing the online VAT Return for a business for the quarter ended 30 November 20X0. The following accounts have been extracted from its ledgers: Sales account Date Reference Debit Date Reference Credit 20X0 20X0 30/11 Balance c/d 188,735.28 01/09 Sales day-book 30/11 UK sales 162,906.28 01/09 Sales day-book 30/11 EU sales 25,829.00 Total 188,735.28 Total 188,735.28 Purchases account Date Reference Debit Date Reference Credit 20X0 20X0 01/09 Purchases day-book 30/11 Balance c/d 91,525.92-30/11 UK purchases 91,008.79 01/09 Petty cash book -30/11 cash purchases 517.13 Total 91,525.92 Total 91,525.92 VAT account Date Reference Debit Date Reference Credit 20X0 20X0 01/09 Purchases day-book 01/09 Sales day-book -30/11 UK purchases 18,201.76-30/11 UK sales 32,581.25 01/09 Petty cash book -30/11 cash purchases 103.42 You have also been told that bad debt relief of 264.00 can be claimed in this VAT Return. You are told that in the last VAT Return the amount of input tax included has been overstated by 403.00. You have been asked to adjust for this error. Complete boxes 1 to 9 of the VAT Return for the quarter ended 30 November 20X0.
1 6 i n d i r e c t t a x ( F i n a n c e A c t 2 0 1 4 ) t u t o r z o n e Online VAT Return for period ended 30 November 20X0 VAT due in this period on sales and other outputs Box 1 VAT due in this period on acquisitions from other EC Member States Box 2 Total VAT due (the sum of boxes 1 and 2) Box 3 VAT reclaimed in the period on purchases and other inputs, including acquisitions from the EC Net VAT to be paid to HMRC or reclaimed by you. (Difference between boxes 3 and 4.) (If Box 4 is greater than Box 3, use a minus sign.) Total value of sales and all other outputs excluding any VAT. Include your box 8 figure. WHOLE POUNDS ONLY Total value of purchases and all other inputs excluding any VAT. Include your box 9 figure. WHOLE POUNDS ONLY Box 4 Box 5 Box 6 Box 7 Total value of all supplies of goods and related costs, excluding any VAT, to other EC Member States. WHOLE POUNDS ONLY Box 8 Total value of all acquisitions of goods and related costs, excluding Box 9 any VAT, from other EC Member States. WHOLE POUNDS ONLY
c h a p t e r a c t i v i t i e s 1 7 5 VAT communications 5.1 The legal framework created by the European Union for the drafting of laws within the European states is known as which of the following? (a) (b) (c) (d) The Budget EU Directives The Finance Act VAT Notices 5.2 You are the accounts assistant at Evanborough Ltd and have just completed the VAT Return for the quarter ended 31 October 20X0. You now need to inform the manager of your department of the dates for filing the Return online and the amount to be paid. The figure in Box 3 of the Return is 13,124.22 and the amount in Box 4 is 7,455.10. Today is 6 November 20X0. Complete the following email by filling in the gaps. To From Date Subject Completed VAT Return Please be advised that I have just completed the VAT Return for the quarter ended The VAT Return must be filed by The amount of VAT payable/receivable (delete as appropriate) will be Kind regards Accounts assistant
1 8 i n d i r e c t t a x ( F i n a n c e A c t 2 0 1 4 ) t u t o r z o n e 5.3 You are an accounting technician who works for a group of car dealerships and you report to the financial manager. He has asked whether the proposed increase in VAT rates will have any effect on the business. He is also interested in whether the business needs to take any action in these circumstances. Today s date is 7 May. Prepare a draft email to the finance manager providing information about some of the potential effects and consequences of a change. Choose ONE option to complete each sentence. To: (Accounting technician/financial manager) From: (Accounting technician/financial manager) Date: 7 May The government has proposed an increase in the VAT rate. As a consequence the business must consider whether it will increase the overall price it charges to customers for the cars it sells, which are inclusive of VAT. You should note that these prices cannot change until the date of the next VAT Return / must change on the date of the VAT change / can remain unchanged if the business chooses. The new rate of VAT must be reflected in the amount of VAT we pay to HMRC only if we change the prices to customers / whether we change our prices to customers or not / only if customers are VAT-registered. The date of the proposed change in VAT rate falls during one of our VAT periods, our system must apply the existing rate of VAT during the whole VAT period / the new rate of VAT during the whole VAT period / both the old and the new rates of VAT during that VAT period depending on the date of purchase. Kind regards A Technician