Indirect Tax Help please exam very soon

Flyby

Hi,

Apologies in advance for spelling errors I have to be quick.

Basically I thought all was going pretty well with my indirect tax knowledge but I am struggling on getting my head clearly around this question from one of the aat practise assesments for Indirect Tax Level 3 Diploma,i'm getting in a bit of a pickle and my exam is this week :confused1:

A business has completed its VAT return which shows an amount due to to HMRC of £5187.00 The VAT account at the end of the same period correctly shows a liability of £4278.00.

Which of the following explains the difference

a) the VAT refund of £909.00 for the previous VAT period was included in the figure for output tax on this VAT return.

b) The VAT payment of £909.00 for the previous VAT period was included in the figure for input tax on this VAT form

Also any little pointers re the VAT account would be helpful, I get the account in principal (what side is what with sales/sales returns etc etc) its just when errors are involved or questions like above then I begin to get lost)

Thank you in advance for any help.

Amy Smith

Hiya Flyby,

I'm useless at explaining things but I'll give it a go.

Basically, if you try to visualise it. In the VAT account for this period, the business owes £4278.00.

The VAT return states what the business ACTUALLY owes to HMRC which is £5187.00. This means that the business is making an extra payment of £909.00 than it should do for this period due to a discrepancy from the period before.

Option b) is correct as it states that there is an extra payment!

If it were option a), the business would be showing £909 LESS on the VAT return than in the VAT account.

Again I apologise if this is unclear, i'm rubbish at explaining myself

Good luck with your exam :001_smile:

crispy

Hello,

Sorry if this confuses more, but after reading I think it should be a) (not to say this is correct- just my opinion ).

If the VAT Control A/c is correct at showing liability of £ 4,278 but the actual return has been completed using £ 5,187 then I believe the VAT Return has £ 909 too much output tax on it - being the refund from previous has been included in outputs for the period.

Amy Smith

My advice would be to ignore my answer then! haha

This is what I would have done but i'm probably wrong and Crispy seems to be much more experienced than myself :001_smile:
Sorry to add to your confusion... :blushing:

crispy

Erm....Im not 100 % sure about that Hopefully another forum member could take a look and give their opinion ? Sorry...

Amy Smith

I've had a think about it, and I agree with your answer Crispy.

Apologies :blushing:

thank god I've already passed this exam! :huh:

florisaigau

my opinion is that A is the correct answer. I'm on ITX at the moment(actually ready to sit the exam+ I have some years of accountancy experience and dealing with VAT)

coojee

I agree the answer is A. The return shows more VAT due than the account so output tax must be higher than it should be. If it was option B then Input tax would be too high which would reduce the amount due.

mentorkeith

The answer is absolutely option A 100%.

With this sort of question it helps to write out the VAT control T account and then observe the result.

If you have received a refund, the account (at that stage) must have looked like this:
Balance B/D 909 DR, from Bank A/c (HMRC) 909 CR Balance £0

If you paid £909 to HMRC it would have to be:
Balance B/D £909 CR, to Bank a/c (HMRC) 909 DR, balance £0

So if the refund (credit entry) was accidentally added to the VAT Return it would be included with the other credit items (ie the sales output tax) and would increase the amount paid to HMRC, therefore answer A. If it was the payment to HMRC ie the DR entry it would be added to all the other purchases input tax and reduce the amount owing to HMRC to £3369

Flyby

Hi Amy
Thank you for your help, you don't need to apologise its nice that you replied in the first place. Good luck wih your studies.
:001_smile:

Flyby

Hi to you all, I really appreciate all your comments and your assistance with this question thank you for taking the time out to help me understand this question, I reckon the penny has finally dropped.

Many thanks all and good luck with your studies
:001_smile:

mentorkeith

Someone else has started a thread on indirect tax. You may find it useful. To go to it, please click on this shortcut:

http://forums.aat.org.uk/showthread.php?37367-Vat-Return-Box-help!&p=267655#post267655