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Questions and Answers
What is the total payable to HMRC by the firm after accounting for input tax?
What is the total payable to HMRC by the firm after accounting for input tax?
A funeral director can recover VAT on equipment purchases because they charge for exempt services.
A funeral director can recover VAT on equipment purchases because they charge for exempt services.
False
What is the output tax rate charged by retailers selling zero-rated food?
What is the output tax rate charged by retailers selling zero-rated food?
0%
A firm has a cashflow problem due to ________ even if customers have not paid.
A firm has a cashflow problem due to ________ even if customers have not paid.
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Match the type of supply with its VAT treatment:
Match the type of supply with its VAT treatment:
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What is the total recoverable amount from HMRC for the retailer after accounting for input tax?
What is the total recoverable amount from HMRC for the retailer after accounting for input tax?
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The firm accounts for input tax in its financial records before the payment is received from the customer.
The firm accounts for input tax in its financial records before the payment is received from the customer.
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How much input tax is suffered by the funeral director on their equipment purchase?
How much input tax is suffered by the funeral director on their equipment purchase?
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What type of accounts must a firm use to pay supplier fees under the principal method?
What type of accounts must a firm use to pay supplier fees under the principal method?
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Under the principal method, the firm can use client money to pay supplier fees.
Under the principal method, the firm can use client money to pay supplier fees.
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What does a firm charge to the client that includes both the surveyor's fee and the firm's professional charges?
What does a firm charge to the client that includes both the surveyor's fee and the firm's professional charges?
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The firm must charge the client output tax on both the firm's professional charges and the __________.
The firm must charge the client output tax on both the firm's professional charges and the __________.
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Match the following terms with their definitions:
Match the following terms with their definitions:
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What is the output tax calculated on a surveyor's fee of £200 and the firm's professional charges of £400?
What is the output tax calculated on a surveyor's fee of £200 and the firm's professional charges of £400?
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The firm can provide a separate invoice for the surveyor’s fee and their professional charges.
The firm can provide a separate invoice for the surveyor’s fee and their professional charges.
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When the firm records a fee and VAT, how should VAT be recorded?
When the firm records a fee and VAT, how should VAT be recorded?
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What is the standard rate of VAT applicable to fully taxable supplies?
What is the standard rate of VAT applicable to fully taxable supplies?
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A firm can ignore exempt supplies when calculating VAT recovery if they fall below the de minimis limits.
A firm can ignore exempt supplies when calculating VAT recovery if they fall below the de minimis limits.
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What must a firm do if it quotes a fee that includes VAT?
What must a firm do if it quotes a fee that includes VAT?
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When services are completed, the time of supply, or tax point, is established for _______.
When services are completed, the time of supply, or tax point, is established for _______.
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Match the statements with their corresponding definitions:
Match the statements with their corresponding definitions:
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If a business registered for VAT quotes a fee of £240 and does not state that VAT is extra, what amount will the customer effectively pay?
If a business registered for VAT quotes a fee of £240 and does not state that VAT is extra, what amount will the customer effectively pay?
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A firm must account for output tax on a supply at the time of _______.
A firm must account for output tax on a supply at the time of _______.
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If a solicitor issues a tax invoice more than 14 days after the basic tax point, what becomes the tax point for that supply?
If a solicitor issues a tax invoice more than 14 days after the basic tax point, what becomes the tax point for that supply?
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Study Notes
Value Added Tax (VAT)
- VAT is a tax that applies to the supply of goods or services.
- It involves two aspects: output tax (charged to customers) and input tax (charged by suppliers).
- A business registered for VAT charges customers output tax, and accounts to HMRC.
- Input tax paid to suppliers can be deducted from the total output tax owed.
- The standard rate of VAT is 20% (as of 4 January 2011).
- There are also zero-rated and reduced rate options for certain goods and services.
- Some goods and services are entirely exempt from VAT.
VAT and Legal Firms
- VAT applies to legal services, both professional charges and client disbursements.
- Firms providing legal services are considered taxable persons and must charge VAT on taxable supplies.
- Legal services are standard-rated VAT supplies.
- Professional charges and disbursements made on clients' behalf are taxable, whether paid by the firm or by the client.
- Solicitor's disbursements (e.g., court fees, estate agent fees, etc.) are not considered part of a taxable service, and aren’t subject to VAT.
- Disbursements must meet specific criteria including: the firm acting as an agent, the client receiving the related goods/services, the client being responsible for payment, the client's authorization, and the disbursement being separate and additional to the firm's services.
- Items that aren't considered disbursements are those considered part of the solicitor's service, like telephone fees, postage, and photocopying, as these are the business's overheads.
- Non-disbursement items (e.g., search fees) are included in the taxable service rather than separate disbursements.
- Firms must record both taxable and non-taxable items separately to accurately calculate total VAT owed to HMRC.
Taxable Person Registration
- A business becomes a taxable person if the total value of supplies exceeds a threshold, declared annually in the Budget.
- Registration allows the recovery of input tax.
Tax Invoice
- A tax invoice is essential for recovering input tax and shows the relevant details.
- It must be issued within 30 days after the supply, stating various specifics like the supplier's details, the client's details, the type and description of services, the amount and the tax rate.
Time of Supply
- The time of supply determines the tax period in which a taxable person becomes liable to account for VAT.
- For goods, it's when the product is made available to the buyer.
- For services, when the service is completed.
- Specific rules and exceptions apply to particular circumstances of supply.
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Description
This quiz provides an overview of Value Added Tax (VAT), including its application to goods and services, as well as specific considerations for legal firms. Learn the basics of output tax, input tax, and the implications for businesses registered for VAT. Understand the rates and exemptions that exist within the VAT system.
