Indirect Tax - Registering for VAT

UncleboobotUncleboobot Registered Posts: 43
Hi Everyone,

I'm working through this unit and would like some clarification if possible.

We are told that a 'person' must apply for VAT registration if, following the 'historic test', it is found that he/she has exceeded the annual VAT threshold. It then goes on to explain the calculations which is all fine so far.

So the question is, IF, having applied the historic test, the business finds they have exceeded the threshold for the preceding 12 months, must they ( in simplistic terms ) give up 20% of the sales ( to HMRC )?

Best Answer

  • Clintm15Clintm15 Well-Known FarehamPosts: 233
    Accepted Answer
    Ahh I see.

    The answer is no. They have 30 days or so to register from the moment they cross the threshold. They begin VAT from moment of registration, no retro-action.
    AAT
    Level 2 - 2011
    Level 3 - 2012
    Level 4 - 2013

    ACCA
    F4 - Corporate Law - Dec 2015 (passed)
    F5 - Performance Management - Dec 2014 (passed)
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    Uncleboobot

Answers

  • Clintm15Clintm15 Well-Known FarehamRegistered Posts: 233
    The VAT owed is the difference between outputs and inputs.

    In simplistic terms...

    Sales 2000
    Purchases 1000

    Output 2000 x 20% = 400
    Input 1000 x 20% = 200

    VAT owed = 200 (400-200)

    If input was higher than output then VAT would be receivable.
    AAT
    Level 2 - 2011
    Level 3 - 2012
    Level 4 - 2013

    ACCA
    F4 - Corporate Law - Dec 2015 (passed)
    F5 - Performance Management - Dec 2014 (passed)
    F6 - Taxation - Dec 2013 (passed)
    F7 - Financial Reporting - Jun 2014 (passed)
    F8 - Audit & Assurance - Dec 2015 (passed)
    F9 - Financial Management - Jun 2015 (passed)
  • UncleboobotUncleboobot Registered Posts: 43
    Hello Clint,

    Thanks for your reply. I don't think I worded my question very well..

    I was more trying to understand that, if after having applied the historic test and the business was found to be above the threshold, would they have to retrospectively have to pay the VAT liability for the previous year/period etc.

    Thanks
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,435
    edited August 2017

    Say the business exceeded the VAT threshold at the end of June (on a 12 months rolling basis), they would need to charge VAT from 1st August.
    Any invoice raised from that date should either be resent to customers with appropriate VAT added. if not practical (say the customers are not VAT registered or they have already paid etc...) then the business will have to account for VAT on the payments (1/6 of the gross amount if standard rated supplies).
    However the business can also start accounting for input VAT on purchases from that date.

    Edit: Clint is correct that there is no retrospective action if you have just exceeded the threshold.
    However if the business realises they have exceeded the threshold in a previous period the VAT is retrospectively accounted for from the date of registration.
    Clintm15Uncleboobot
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