Value Added Tax (VAT) Accounting and the Supplies Valuation for a England formation Business


The accounting of VAT is done on the regular returns and it is important to keep the extensive records safe. This blog will discuss the accounting for VAT including the periods of VAT, return of VAT, Electronic filling, substantial traders, VAT refunds and the records keeping by traders having England formation business. Also, the valuation of supplies will be brought under consideration covering the topics of its main principles, and types of supplies.

Periods of Value Added Tax (VAT)

The period of VAT, that is also called the period of tax, is the period that gets covered by a return of VAT. The duration is, in a usual manner, equal to three calendar months. The purpose of return here is to show the net input and output tax for the period of tax.

The allocation of periods of VAT is done by the HMRC depending on the class of trade that is being carried out in order to widen the VAT returns’ flow over the year in an even manner. When a trader decides to apply for the registration of VAT, he can then inquire about the periods of VAT that are suitable according to his personal year of accounting. There might also be a possibility that the periods of VAT are available in order to cover the systems of accounting which are not dependent on the months of calendar.

In the case of a person who is registered and there is a chance in an increment of his input tax as compared to the output tax at a regular basis, then he can elect for a period of VAT equivalent to one month, but the balancing of inconvenience will be required for making returns, 12 in number, for a year against the benefit of the acquiring of more frequent VAT repayments.

There exist some certain small business in UK or register ltd company UK that make the submission of a yearly return of VAT.

Return of VAT

The form named as the VAT 100 is used to make the regular return of VAT to HMRC. There are certain boxes on a return of VAT that need to be filled by the trader.

  • Box 1 needs you to enter the VAT that is due on outputs such as sales etc.
  • The box 2 requires the VAT due on the acquisitions from other member states of the European Union.
  • Box 3 sums up the entries in box 1 and box 2.
  • Box 4 needs the VAT that is reclaimed on inputs such as purchases etc.
  • Box 5 contains the total VAT that needs payment or reclaims, that is the difference between the entries of boxes 3 and 4 respectively.
  • Box 6 holds the net value of sales and all other outputs before discounts, minus VAT but adding the total entry in box 8.
  • Box 7 is the place for the total or net value prior to cash discounts of purchases and all such inputs, minus VAT but adding the result of box 9.
  • Box 8 contains the summed up or total value of services, such as sales to other European Union member states.
  • Box 9 consists of the summed up or total value of services, such as that of purchases from the other European Union member states.

It should be taken care that the figures of input and output tax are supported by the original invoices of tax or their copies, and the maintenance of records must be done for a period of six years.

Filling of Returns of VAT Online

Almost each of the business in UK or register ltd company UK should file their returns of VAT through online means and make the payments in an electronic manner.

The due limit for the payment and submission of the return is one month, and an additional 7 days since the ending of the period of VAT. As an example, consider a business that has a quarter of VAT that is to be ended on March 31st 2014, then he must file its return of VAT and make the payment of due VAT by May 7, 2014.

Substantial Traders

If the net viability by the end of a period of VAT of over 12 months becomes more than an amount of £23,00,000, then the trader having open ltd UK business must make sure that the payments are made during the quarter on account of every VAT liability of the quarter.

The payments are due and should be paid one month prior to the termination of a quarter, at the ending days of the month, which is the last month of the quarter and one month later since the quarter has ended. The electronic procedure for the payments must be followed and it should be kept in mind that no extra seven days for the payment will be given once the month ends.

Each payment’s amount on account is 1/24 of the net yearly liability of VAT. The compulsion to make the payment on account initiates as the first period of VAT commences after March 31st.

The default surcharge is applicable to the payments that are made late. A trader may make a choice to make his payment of actual liability of VAT every month. As an example, consider that the actual liability for the month of January will be requiring the payment by the end of February. The trader can still go on to make the submission of returns that are made quarterly as long as HMRC remains satisfied that the trader is making the payment of enough amounts every month.

In the case if the total annual liability of a trader is increased to a 120% or more of the amount that is used in the calculation of the payments made on account. This increment becomes applicable from the end of the duration of 12 months having the new annual liability that is higher.

As soon as the trader enters a scheme, the re-computation of payments on account is done every year. If the annual liability of a trader is below the value of £18,00,000, the trader can then apply not to make the payments on account anymore.

In order to perform the computation of payments on account, the VAT of a trader, which is due on the imports from outside the European Union is not considered.

Reclaiming Overpaid VAT

There exists a limit of four years’ time period in order to reclaim the VAT that has been overpaid. This limit of time is not applicable to the input tax that the open ltd UK business has not reclaimed before due to the fact that the supplier just made the invoice of the VAT in recent past, although it was related to a purchase that was made quite some time ago. It is also not applicable to the penalties of VAT that are overpaid.

If a taxpayer has an amount of VAT that is overpaid, and he over claims the input tax due to the same mistake, then HMRC holds the authority to set off any penalty, tax, surcharge or interest that is due to them against any due repayment to the taxpayer and can repay only the total amount. The normal four years’ time limit in order to recover penalties, VAT, interest etc., by assessment is not applicable in such cases.

It should be remembered that the HMRC has the authority to refuse the repayment in a case where it would make the claimant rich in an unjust way. HMRC can also choose not to pay the VAT again where part of the tax or all the tax has been paid by some person who is not the taxpayer himself, for practical aims. For example, if the payment is made by a customer of the payer of tax. There is an exemption to this rule if the taxpayer is able to present any damage or loss as a consequence of assumptions made about VAT mistakenly.

Records of VAT

Every trader who is registered for VAT, should keep a record with him for a period of six years, even though it is possible that sometimes, HMRC permits their destruction earlier. The records may be kept safe on a paper, on microfiche or microfilm or simply in a soft form on computer. However, there should be facilities for HMRC in order to carry out the inspection of records.

It is important to keep all the records updated and this should be done in a way that permits the computation of due VAT and allows the HMRC officers to cross check the figures present on the returns of VAT.

The records that are required are as follows:

  • Copies of invoices of VAT, debit notes and credit notes issued.
  • A summed up form or a summary of the supplies that have been made.
  • The invoices of VAT, debit notes and credit notes that have been acquired.
  • A summed up form or a summary of the supplies that have been received.
  • The records of the acquired goods from and sent forward to other European Union member states.
  • Documents that are related to exports to and imports from the countries outside the European Union.
  • An account of VAT.
  • Notes of delivery and order, correspondence, job books, appointment books, sales and purchases books, account books, cash books, takings records such as till rolls, paying-in slips of the bank, statements of bank and yearly accounts.
  • Records of supplies that are exempt and zero-rated, loans or gifts of goods, self-supplies liable to tax and any goods that are taken for the non-business purposes.

Supplies Valuation

The charge of VAT is made on the price that is exclusive of VAT. In the case where the offer of a discount is made for quick payment, then VAT becomes chargeable on the total amount even if the taking up of discount does not occur.

Main Principles

The price on which VAT is charged is the value of a supply i.e. the exclusive price of VAT. The amount paid in money or the worth of money is the consideration of a supply, having a standard rate of 20%.

The value for the purposes of VAT is the VAT-exclusive price charged by the trader under the condition that the consideration of a bargain made at arm’s length is paid in the form of money. If the payment is made in some other means than cash, such as in a barter of some services or goods for others, it should be valued and then the value added tax is due on the value.

If a reduction occurs in the price of goods with the help of money off coupons, then the cost of the supply is the amount that is in reality, acquired by the taxpayer.

Composite Supplies and Mixed supplies

Different services and goods are at times, invoiced collectively at a price that is inclusive. This is known as a mixed supply.

There are some items that are charged at the zero rate or at the standard rate. The supplier should take into account the VAT in a separate way, on the zero rated and the standard rated elements by the division of net payable amount in a proportion that is fair between the different elements and a charge of VAT applicable on each of them at an appropriate rate.

There exists no single way of doing this, rather multiple methods exist. One method suggests that you split the amount in accordance to the cost of each element as given by the supplier, and one other method is to make use of the open market value of every element. Mixed supplies are also labelled as the multiple supplies.

In the case if splitting of supply cannot be done into components, then there exists a composite supply on which one rate of VAT is applicable. The rate is dependent on the nature of a supply in its complete manner. Compound supplies is another name that is given to the composite supplies for the formation of Great Britain business.

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