inputs, outputs & schemes. session objectives 1. correctly calculate relevant inputs and outputs...

Inputs, Outputs & Schemes

Session Objectives

1. Correctly calculate relevant inputs and outputs using these VAT classifications: standard supplies; exempt supplies; zero-rated supplies; imports; exports

2. Correctly identify the key features of the following VAT schemes•Annual Accounting•Cash Accounting•Flat Rate Scheme•Standard Accounting

AAT Reference MaterialAvailable in the exam – but you must revise it prior to the exam so you know where to find the information you need!

Glossary

Calculation of VAT

What is the difference between Zero Rated and Exempt Transactions?

Question 1Net £ VAT Rate

%VAT £ Gross £

20% 2500.00

1000.00 5%

125.30 0%

5% 879.80

1505.20 20%

Question 1Net £ VAT Rate

%VAT £ Gross £

2083.34 20% 416.66 2500.00

1000.00 5% 50.00 1050.00

125.30 0% 0 125.30

837.91 5% 41.89 879.80

1505.20 20% 301.04 1806.24

Reclaiming input tax

Generally straight forward but a few considerations to be aware of

Reclaiming input tax

Fuel Scale ChargesC. Di. Oxide Ltd provides a company car to Khan and pays for all his private fuel.

The CO2emission level of the car is 200 g/km.

The scale charge table shows (for a 3 month period):

200 g/km £350 (net) VAT £70.00

Fuel Scale ChargesC. Di. Oxide Ltd provides a company car to Khan and pays for all his private fuel.

The CO2emission level of the car is 200 g/km.

The scale charge table shows (for a 3 month period):

200 g/km £350 (net) VAT £70.00

£350 will be added to the total outputs on the company’s VAT return and additional output tax of £70.00 will be payable by the company.

Question 2

Scenario Include this on your

current VAT return?Yes/No

Output/input VAT amount to be

included on VAT return

a) You provide a valued trader with a case of vodka as a Christmas gift (cost price £96)

b) You are a printing business and give each of your 120 customers a desk calendar each year (cost price £1.50)

c) You sold goods to a debtor costing £940 inc VAT, issuing them with an invoice on the 28th March. Your terms of payment are net 30 days. The date is now the 31stOctober and your VAT return is now due for completion.

Question 2 cont . . . .

d) You purchase a car for the business costing £18,000 plus VAT. The car is given to one of your sales reps to use.

e) You purchase a delivery van for £22,000 plus VAT to be used within the business.

f) You wine and dine a potential new customer. The restaurant bill totals £56.40 inc VAT

g) You sold goods to a debtor costing £1410 inc VAT, issuing them with an invoice on the 30thApril. Your terms of payment are net 60 days. The date is now the 30th November and it is the end of your VAT quarter.

h) Your employees keep records of their personal and business mileage for their cars and only reclaim their business mileage expense element. During the VAT quarter, employees have claimed car expenses totalling £1292.50 inc VAT.

Complete Questions 3-4

Trading Overseas

Within the EU

Outside the EU

VAT must be paid prior to release

into UK by HMRC

Imports & Exports

Which countries are in the EU?

How many?

Which countries are in the EU?

How many?

EU Overseas transactionsImports & Exports

Find the information in the

reference material!

Question 5

To registered traders

To non-registered

traders

Zero-rated Zero-rated Standard-rated Zero-rated Zero-rated Standard-rated Standard-rated Standard-rated

Use your reference material

Question 5

To registered traders

To non-registered

traders

Zero-rated Zero-rated Standard-rated Zero-rated Zero-rated Standard-rated Standard-rated Standard-rated

Question 6 - Coleman’s Toys

No VAT is charged by the EU supplier so can be ignored by the buyer on their VAT return.

Coleman’s must pay output VAT to HMRC at the port/airport and can reclaim the input VAT on their next VAT return.

Coleman’s must charge themselves output VAT and reclaim input Vat on the same return

No VAT is charged by the EU supplier so can be ignored by the buyer on their VAT return.

Coleman’s must pay output VAT to HMRC at the port/airport and can reclaim the input VAT on their next VAT return.

Coleman’s must charge themselves output VAT and reclaim input Vat on the same return

Question 6 - Coleman’s Toys

Keeping recordsList source documents/records for VAT output and input tax

VAT Account

What would be included in the VAT account?

VAT Account

VAT AccountVAT on purchases (PDB)VAT on cash purchases (CB/PCB)

VAT AccountVAT on purchases (PDB) VAT on sales (SDB)VAT on cash purchases (CB/PCB)

VAT on cash sales (CB)

(VAT on purchase returns (PRDB)

(VAT on sales returns (SRDB)

VAT on bad debts (Journal) VAT on EU acquisitions VAT due on EU acquisitions(VAT on purchase returns (PRDB)

(VAT on sales returns (SRDB)

(Adjustment – Net over-claim of input tax from previous returns)

Adjustment – Net understatement of output tax on previous returns

Keeping records

VAT invoices

Tax collector for the government

VAT on Sales – Output Tax

VAT on Purchases – Input Tax

Difference is paid to OR received from

Form VAT 100

Difference between output tax and input tax

A trader buys goods for £1,762.00 including VAT at 20.0% and sells them for £2,000.00 plus VAT. How much VAT is paid to HM Revenue & Customs?

Question 7 – The tax collector

Net VAT GrossPurchasesSales

Net VAT GrossPurchases 1762.00

£1762 ÷ 120 x 20 = £293.66

Net VAT GrossPurchases 293.66 1762.00

£1762 - £293.66= £1468.34

Net VAT GrossPurchases 1468.34 293.66 1762.00

Sales 2000.00

Sales 2000.00 400.00

Sales 2000.00 400.00 2400.00

Output (Sales) Tax – Input (Purchases) Tax = Balance to HMRC

Sales 2000.00 400.00 2400.00

Output (Sales) Tax – Input (Purchases) Tax = Balance to HMRC

400.00 – 293.66 = £106.34 payable

Complete question7b – 7c

Transaction VAT amount

Input tax /

output tax

A trader purchases goods for £102.00 plus VAT

The trader then sells these goods for £195.84 including VAT

b) For each transaction calculate the VAT amount and indicate whether this would be input tax or output tax.

Complete the following (* delete the incorrect phrase):The amount due to* / reclaimable* from HMRC is £…………..

Input tax /

output tax

Input tax /

output tax

Input tax /

output tax

20.40 InputTax

Input tax /

output tax

20.40 InputTax

Input tax /

output tax

20.40 InputTax

Input tax /

output tax

20.40 InputTax

Input tax /

output tax

20.40 InputTax

32.64 OutputTax

Input tax /

output tax

20.40 InputTax

32.64 OutputTax

Input tax /

output tax

20.40 InputTax

32.64 OutputTax

Output tax 32.64Input Tax 20.40Tax due to HMRC 12.24

Input tax /

output tax

20.40 InputTax

32.64 OutputTax

Complete the following (* delete the incorrect phrase):The amount due to* / reclaimable* from HMRC is £12.24

Input tax / output tax

100.00 Input

85.00 Output

The amount due to* / reclaimable* from HMRC is £15.00

Q7c - Answer

Question 8Revision of documentation

Reference Material!

Must be included on a full VAT invoice

Customer order number Invoice dateDescription of the goods or services suppliedCustomers VAT numberSellers VAT numberCustomers name & addressSuppliers name & addressSellers required payment methodRate of settlement discount (if offered)VAT rates appliedAmount excluding VATAmount of VAT charged

Question 8

Answer next slide

Must be included on a full VAT invoice

Customer order number Invoice date Description of the goods or services supplied

Customers VAT number Sellers VAT number Customers name & address Suppliers name & address Sellers required payment method Rate of settlement discount (if offered) VAT rates applied Amount excluding VAT Amount of VAT charged

Question 8

Question 9 The invoice should only show the total VAT charges

The invoice should show the standard rate VAT and the reduced rate VAT as separate amounts on the invoiceThe invoice should show the standard rate VAT separately and include the reduced rate VAT in the Gross amount due

The invoice should show the reduced rate VAT separately and include the standard rate VAT in the Gross amount due

Task 7 The invoice should only show the total VAT charges

The invoice should show the standard rate VAT and the reduced rate VAT as separate amounts on the invoice

The invoice should show the standard rate VAT separately and include the reduced rate VAT in the Gross amount due

The invoice should show the reduced rate VAT separately and include the standard rate VAT in the Gross amount due

Question 9

Complete Question 10 & 11

Answer next slide

Question 10 Answer is £250

Question 11 Answer is the third choice

VAT SchemesStandard Accounting – The default scheme when registering for VAT

Standard AccountingAnnual accountingCash AccountingFlat Rate Scheme

Who can use it?What/when do they pay?When do they send a VAT return?

Standard AccountingWho can use it?What/when do they pay?When do they send a VAT return?Advantages/Disadvantages

Annual accounting

LEVEL 3 DIPLOMA IN ACCOUNTING INDIRECT TAX

FINANCE ACT 2013

Cash accounting

FINANCE ACT 2013

Flat rate scheme

FINANCE ACT 2013

Question 13

Remember to use your AAT

reference material!

Discuss the scenario you have been given and recommend an appropriate VAT scheme

Fox Ltd manufactures and sells underwear to other businesses. All goods are standard rated and all sales and purchases are made on credit

Standard

Annual

Cash Flat-rate

Standard

Annual

Cash Flat-rate

Mag Azine runs a retail shop selling goods to the public. All sales are for cash and all purchases are made on credit. Mag Azine’s supplies are 98% standard rated.

Standard

Annual

Cash Flat-rate

Play Zoo manufactures children clothing. All sales are zero rated and items are sold to retailers. Sales and purchases are made on credit.

Standard

Annual

Cash Flat-rate

Chelsea Bun runs a small bakery and has a patisserie from which she sells her goods. Her sales are a mixture of mainly zero rated (breads) and some standard rated (hot food to take away) supplies. Patisserie sales are for cash, but she does makes sales of celebratory cakes on a credit basis. Purchases are made on credit.

Standard

Annual

Cash Flat-rate

Ali Baba, a barber, finds keeping detailed records difficult. All his sales are for cash and his purchases are made by cash.

Question 14Flat rate or standard rate? Ali Baba has in the last year had annual net sales of £102,000, all of which are standard rated. His standard rated net expenses for the corresponding period were £18,000. a)What would be his liability using the Standard

Accounting method?b)What would be his liability if he could use a Flat Rate

of 10%?

Question 14Ali Baba has in the last year had annual net sales of £102,000, all of which are standard rated. His standard rated net expenses for the corresponding period were £18,000. a)What would be his liability using the Standard

Accounting method?

Ali Baba has in the last year had annual net sales of £102,000, all of which are standard rated. His standard rated net expenses for the corresponding period were £18,000. a)What would be his liability using the Standard

Accounting method?Net

AmountVAT

(20%)Gross

Sales 102,000

Question 14

AmountVAT

(20%)Gross

Sales 102,000

102,000 x 20%

Question 14

AmountVAT

(20%)Gross

Sales 102,000 20,400

102,000 x 20%

Question 14

AmountVAT

(20%)Gross

Sales 102,000 20,400

Question 14

AmountVAT

(20%)Gross

Sales 102,000 20,400 122,400

Question 14

AmountVAT

(20%)Gross

Sales 102,000 20,400 122,400

Question 14

AmountVAT

(20%)Gross

Sales 102,000 20,400 122,400

Purchases 18,000

Question 14

AmountVAT

(20%)Gross

Sales 102,000 20,400 122,400

Purchases 18,000

18,000 x 20%

Question 14

AmountVAT

(20%)Gross

Sales 102,000 20,400 122,400

Purchases 18,000 3600

18,000 x 20%

Question 14

AmountVAT

(20%)Gross

Sales 102,000 20,400 122,400

Purchases 18,000 3600

Question 14

AmountVAT

(20%)Gross

Sales 102,000 20,400 122,400

Purchases 18,000 3,600 21,600

Question 14

AmountVAT

(20%)Gross

Sales 102,000 20,400 122,400

Purchases 18,000 3,600 21,600

Question 14

AmountVAT

(20%)Gross

Sales 102,000 20,400 122,400

Purchases 18,000 3,600 21,600

20,400 – 3,600 = 16,800

Question 14

Ali Baba has in the last year had annual net sales of £102,000, all of which are standard rated. His standard rated net expenses for the corresponding period were £18,000. What would be his liability if he could use a Flat Rate of 10%?

Sales Revenue (INCLUDING VAT)£122,400 x 10% = £12,240

Question 14

Description Input VAT Reclaim input VAT?

Car – for personal use by employee £2,010.00 Yes / NoCustomer entertainment £24.90 Yes / NoStaff party £67.86 Yes / NoStationery supplies for the accounts office

£172.34 Yes / No

Raw materials for the manufacturing process

£49,000 Yes / No

New computer - an 18th birthday present for the managing director’s daughter

£108.50 Yes / No

Repairs to taxable traders garage roof at his home

£490.00 Yes / No

New kitchen equipment for the staff canteen

£6,230.00 Yes / No

Question 15

Item Input tax

recovered

Sale proceeds (excl VAT)

Output tax £

Computers Yes £1,900.00

Car No £8,280.00

Van Yes £15,000.00

Motorcycle Yes £4,300.00

Question 16

Question 17

Drawings

Goods Cash

Output tax due

Outside the scope

of VAT

Question 18 - Drawings

Description

Original cost

Replacement cost

Output VAT£

Goods for own use

300 340

Cash drawings

1200 1200

Output tax is calculated on

the replacement

Description

Original cost

Replacement cost

Output VAT£

Goods for own use

300 340 68.00(340 x 20%)

Cash drawings

1200 1200

Description

Original cost

Replacement cost

Output VAT£

Goods for own use

300 340 68.00

Cash drawings

1200 1200 0

Outside the scope of VAT

Description

Original cost

Replacement cost

Output VAT£

Goods for own use

300 340 68.00

Cash drawings

1200 1200 0

Now try Question 19

Question 20Hand-out

Question 21Tax point revision

HomeworkComplete remaining questions in the hand-out.

Revision for progress test next week

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