TX: VAT

Answer: D. When taxable turnover in a trailing 12-month period exceeds £90,000, the business must notify HMRC by the end of the 30-day period following the month in which the threshold was exceeded. Threshold exceeded in March 2026 → notify by 30 April 2026. Registration is effective from 1 May 2026 (the first day of the month after the 30-day notification period). Option A (register from 1 April) is too early. Option B (notify immediately) applies to the forward-looking test. Option C (register from 31 March) is the date of exceeding, not the effective date.

Answer: B. The main benefit of voluntary registration is the ability to reclaim input VAT on business purchases and expenses — this is particularly valuable for businesses that buy significant amounts of taxable goods and services. Option A is wrong — charging VAT to customers may make the business less competitive; it is not a 'benefit' in isolation. Option C is wrong — VAT registration creates additional record-keeping obligations. Option D is wrong — flat rate scheme eligibility is based on turnover thresholds, not registration type.

Answer: C. Input VAT on goods purchased before registration can be reclaimed if: the goods were bought within 4 years before registration AND they are still held at the date of registration. Goods purchased January 2026 (within 4 years) and still on hand = £1,200 reclaimable. Input VAT on services: within 6 months before registration. Capital goods (equipment) purchased October 2024 — this is more than 3 years before registration but within 4 years AND still in use. Equipment bought for use in the business within 4 years and still held = £4,000 reclaimable. Total = £5,200. Option A only claims goods VAT. Option B only claims equipment VAT. Option D is incorrect — relief is available.

Answer: A. Output VAT = £80,000 × 20% = £16,000. Input VAT on allowable purchases: business entertainment input VAT is blocked. Non-entertainment purchases = £45,000 − £6,000 = £39,000. Input VAT = £39,000 × 20% = £7,800. VAT payable = £16,000 − £7,800 = £8,200. Option C (£7,000) reclaims all the input VAT, including the blocked entertainment VAT (£16,000 − £9,000). Options B and D contain other errors.

Answer: A. The basic tax point for goods is the date the goods are removed or made available to the customer — in this case, delivery on 18 March 2026. However, if a VAT invoice is issued within 14 days of the basic tax point, the invoice date becomes the actual tax point. Here, the invoice is issued on 5 April — 18 days after delivery — which exceeds 14 days, so the invoice date does NOT override the basic tax point. The basic tax point of 18 March 2026 stands. Option B would apply if the invoice were issued within 14 days. Option C — payment date is only the tax point if payment is received before delivery. Option D describes a different rule.

Answer: A. Zero-rated supplies are technically taxable at 0% — the supplier is registered for VAT and can recover input VAT on related costs. Exempt supplies are outside the VAT system — the supplier cannot charge VAT and cannot recover input VAT attributable to exempt supplies. This is a critical distinction: a business that makes only exempt supplies cannot register for VAT (voluntarily or otherwise). Options B, C and D all contain incorrect descriptions.

Answer: B. VAT bad debt (impairment loss) relief can be claimed when the debt is more than 6 months old — measured from the later of the date payment was due and the date of supply. The debt must also have been written off in the accounts. Sundown's supply was June 2024; assuming payment was due 30 days later (July 2024), relief is available after January 2025 (6 months from due date). Option A requires the debt to be written off but also the 6-month condition. Option C uses a 12-month rule — too long. Option D is wrong — formal insolvency is not required.

Answer: B. Exports of goods to overseas customers (outside the UK) are zero-rated for VAT purposes. This means Ferngate Ltd charges 0% VAT on the supply but can still recover input VAT on the costs of producing and selling those goods. Option A incorrectly applies the standard rate. Option C (exempt) is incorrect — exports are zero-rated, not exempt. Option D is wrong — exports are within the scope of VAT (at 0%).

Answer: B. Under the flat rate scheme, VAT payable = gross (VAT-inclusive) turnover × flat rate percentage = £120,000 × 11% = £13,200. The flat rate scheme applies a fixed percentage to gross turnover — the business does not separately calculate output and input VAT. Option A (£20,000) = £120,000 × 20%/120% × 100% which is the standard VAT in the price. Option C and D use incorrect rates.

Answer: B. The key benefit of the cash accounting scheme is that output VAT is only due when payment is received — not when the invoice is issued. This provides automatic bad debt relief (if a customer never pays, no output VAT is due). It also helps cash flow for businesses with long credit periods. Option A describes the standard (invoice) accounting method, not the cash scheme. Option C describes the annual accounting scheme. Option D is wrong — VAT records must always be maintained.

Answer: B. Under the annual accounting scheme, the business submits one VAT return per year. Payments are made monthly (9 monthly payments starting in month 4, each equal to 10% of the prior year's VAT liability) or quarterly (3 quarterly payments, each 25% of prior year's VAT). A balancing payment (or repayment) is made with the annual return. Option A (one payment at year end) is incorrect — interim payments are required. Option C describes the standard scheme. Option D is incorrect.

Answer: B. Under VAT group registration, a single VAT return is submitted for the group and supplies between group members are disregarded for VAT — they are treated as outside the scope. All companies in the group use a single VAT registration number. The representative member (usually the parent) is responsible for accounting for VAT. Option A incorrectly suggests separate returns. Option C and D are wrong — no rate reductions or exemptions arise simply from group registration.

Answer: B. Input VAT on business entertainment (entertaining customers, suppliers, or other third parties) is specifically blocked and cannot be reclaimed. VAT on staff entertainment may be reclaimable. Diesel for a delivery van (A), office stationery (C), and hotel accommodation for business purposes (D) all have reclaimable input VAT, provided they are used for business purposes.

Answer: D. For businesses submitting online (which is now mandatory for most), the VAT return and payment are due one month and 7 days after the end of the VAT accounting period. For a quarter ending 31 March 2026, this means the return and payment are due by 7 May 2026. Option A (15th of following month) is incorrect. Option B (end of following month) is the deadline for paper returns (now rarely applicable). Option C gives an incorrect date.

Answer: B. The transfer of a business as a going concern (TOGC) is outside the scope of VAT — no VAT is chargeable, provided both parties are VAT-registered (or the buyer immediately becomes VAT-registered), the assets are used to continue the same kind of business, and it is a genuine transfer of a going concern. This is a relieving provision to facilitate business transfers. Options A, C and D all apply VAT treatments — TOGC is outside the scope entirely.

Answer: C. The deregistration threshold is £88,000 — if a business expects its taxable turnover to fall below £88,000 in the next 12 months, it may apply to deregister. Note: the registration threshold is £90,000 (higher) and the deregistration threshold is £88,000 (lower). This gap prevents businesses from registering and deregistering at the same turnover level. Options A, B and D all give incorrect thresholds.

Answer: A. For VAT purposes, the value of a supply is the full consideration received. Where part-exchange is involved, the full selling price (£24,000) is the gross consideration — the part-exchange value does not reduce the VAT base. VAT on £24,000 (inclusive): £24,000 × 20/120 = £4,000. Option B (£3,333) applies 20/120 to £20,000 (net of trade-in). Options C and D use incorrect bases.

Answer: B. Under the current VAT late payment penalty regime: no penalty if paid within 15 days of the due date; 2% of outstanding VAT if paid from day 16 to 30; 4% from day 31 onwards; plus a further daily 4% annualised if still unpaid after 30 days. This graduated approach replaced the old default surcharge system. Option A (flat 5%) describes the old surcharge system. Option C (fixed £200) describes the late filing penalty for self-assessment. Option D is incorrect.

Answer: A. Flat rate scheme VAT = £60,000 × 12.5% = £7,500. Standard scheme: £4,500. The standard scheme gives a lower VAT bill (£4,500 < £7,500). In this case, the flat rate scheme would cost more — the standard scheme is more beneficial. This illustrates why businesses should compare before joining the FRS. Option B wrongly says the two schemes give the same bill. Option C uses an incorrect flat rate. Option D gets the flat rate figure right but the comparison wrong.

Answer: C. The supply must be apportioned: bread rolls are zero-rated (£1.80 × 0% = £0 VAT); cake is standard-rated (£3.60 × 20% = £0.72 VAT). Total VAT = £0.72. Total VAT-inclusive price = £1.80 + £3.60 + £0.72 = £6.12. Option A (£5.40) applies zero-rating to both. Option B (£6.48) applies 20% to the full price. Option D (£5.76) applies VAT to an incorrect amount.