F6 Taxation (UK)

Section A: The UK tax system Section B: Income tax liabilities Section C: Chargeable gains Section D: Corporation tax liabilities Section E: Inheritance tax Section F: National insurance contributions Section G: Value Added Tax Section H: The obligations of tax payers and/or their agents Taxation (UK)

Designed to give you the knowledge and application of: Section G: Value Added tax G1. The scope of Value Added Tax G2. The VAT Registration Requirements G3. The computation of VAT liabilities G4. The effect of special schemes

G1 : The scope of value added tax  Describe the scope of VAT. [2]  List the principal zero-rated and exempt supplies. [1] Learning Outcomes

G2: The VAT registration requirements  Recognise the circumstances in which a person must register for VAT. [2]  Explain how and when a person can deregister for VAT. [1] Learning Outcomes

Describe the scope of VAT Value added tax (VAT) an indirect tax tax on value addition put in to process charged on turnover, not profits ultimately borne by final consumer  Charged on taxable supply of goods & services in the UK by taxable person  An indirect tax charged on turnover and not on profit  It is charged on the consumption of goods and services by the final consumer  At each stage of manufacturing process, a trader adds VAT on his sales  Each supplier receives a credit for any VAT he has paid on his purchases  The supplier pays HMRC the difference between the VAT charged & the VAT suffered, the final consumer suffers the total tax Important points Refer to Example (Tasty Ltd) on page 460 Continued…

Supply of goods  Ownership of goods passes from one person to another  Goods are sold on hire purchase basis  Goods are supplied for some consideration. Taxable supply - supply of goods / services which are not declared to be exempt from VAT by HMRC There are two essentials needed before VAT can be charged  Taxable person  Taxable supplies Taxable person Person making taxable supplies who has registered or is required to register for VAT includes individual, partnership, limited company, association, charity or club. If taxable supplies exceed £70,000 then he is taxable person and should be registered for VAT Refer to Examples on page 462 Continued…

 taxable at 17.5% (up to 3 January 2011) and at 20% (from 4 January 2011 onwards)  if inputs are standard rated, supplier will receive refund for VAT suffered VAT is charged on taxable supplies at Either at Standard rate Or at Zero-rate  taxable at 0%  if outputs are zero-rated but inputs are standard rated, supplier will receive a refund for VAT suffered VAT not charged on exempt supplies Supply of services  Supply is in exchange for some consideration  Supply is not a supply of goods  If supply of services includes any goods, those goods are only hired and ownership is not transferred Continued…

 Food (for human and animal consumption) except luxury food like chocolates, ice-cream, alcoholic drinks  Sewerage services and water (except for industrial use)  Talking books and radios etc. for the blind  Passenger transport (except taxis and hire cars)  Books, newspaper, journals etc. (but not stationery)  Children’s clothing and footwear  International services which are to be performed outside the European Union  Certain caravans and houseboats  Bank notes  Gold supplied by one central bank to another central bank or member of the London gold market  Drugs and medicines prescribed by a practitioner and certain aids to the handicapped  Charities etc. Zero-rated supplies  Betting, lotteries and gaming  Burial and cremation services  Fund-raising events by charities  Cultural services  Education provided by schools and universities  Financial services (e.g. bank charges, stock broking, underwriting)  Health and welfare services  Insurance  Investment gold  Land  Non profit-making sports competitions etc  Postal services provided by post offices  Supplies of goods on which input tax is not recoverable  Supplies to members by trade unions and professional bodies  Disposal of works of art to approved bodies Exempt supplies List the principal zero-rated and exempt supplies

Recognise the circumstances in which a person must register for VAT A person must register for VAT if his taxable turnover exceeds the registration limit of £70,000 Situations when VAT registration is compulsory Effective registration date Notification to HMRC Registration Future test Historic test From the end of the month following the month when the limit was exceeded Must be given within 30 days of the end of the month when the £70,000 limit was exceeded Compulsory if, at the end of any month, the taxable turnover (excluding VAT) for the last 12 months exceeds £70,000 From the beginning of the 30 day period Must be given by the end of the 30 day period Compulsory if taxable supplies are expected to exceed £70,000 during the next 30 days Refer to Test Yourself 1 on page 469 Refer to Test Yourself 2 on page 470

Explain how and when a person can deregister for VAT Compulsory deregistration  If person ceases to make taxable supplies  Notify HMRC within 30 days of ceasing the taxable supplies  The effective deregistration date is the day taxable supplies ceased  Return the HMRC the input tax which was wrongly recovered by the trader since the date the trader should have been deregistered. Voluntary deregistration  Notification to HMRC may be made when it appears that taxable turnover in the next 12 months will not exceed £68,000  Effective deregistration date is the day HMRC is notified Refer to Example (Stella) on page 475 Deregistration

RECAP  Describe the scope of VAT. [2]  List the principal zero-rated and exempt supplies. [1]  Recognise the circumstances in which a person must register for VAT. [2]  Explain how and when a person can deregister for VAT. [1]