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INTRODUCTION

An indirect tax is a tax which is collected by one entity in the supply chain process and paid to the government of the country, but it is passed to the customer as part of the purchase price of a product or service. The customer is ultimately pays the tax by spending more for the goods and service. Value added tax, service tax, goods and service tax etc. are some of the examples of the indirect taxes. Value added tax (VAT) was introduced in 1973 and it is now third largest source of revenue for the government after income tax and national insurance. The given project is divided into four tasks. First task involves information regarding VAT sources, registration requirements etc. Second task includes information regarding VAT returns, third task involves VAT penalties and adjustments for earlier errors and the last task contains the details regarding communication of VAT informations.

TASK 1

1.1 Identification of sources of information on VAT

VAT is levied on most of the goods which are provided by registered entity in the UK and some of the goods and services which are imported from outside the European Union. For levying the VAT and other legal requirements, it is very important to identify the various sources of information on VAT. The sources of information of VAT are taxpayers' registration information like tax identification number, information from tax returns, reports and statements like VAT return with annexes (input tax, turnover and IC acquisition), information on tax payments like payment acknowledgement, information on the actions which are taken by the administration of tax like risk analysis, information from the tax administration departments like criminal cases, explanation registry like organization's economical activities which are given by the officials of the risky companies and registry by the fictitious companies like tax administration assumed some companies as risky ones and meeting the certain criteria (examples- registered, using the documents of the third person etc.)  

TASK 2

2.1 Extraction of relevant data for a specific period of accounting period

In the UK, VAT returns can be submitted either monthly or quarterly. Most of the returns are completed on a quarterly basis. Once registered, a business will be assigned to a “VAT stagger group”. Let us assume stagger group on which quarters ends on March, June, September and December. Following are the details for the extraction of relevant data for filing the return of the VAT for the quarter ending 31st December, 2018:

Accounting Information

For VAT payable:

Sales Book              £ 256658

Less: Credit Note    £ 2762

Total                       £ 253896            

Cash Book              £ 9858

EU Acquisitions     £ 21630

Correction of error £ 1763

Grand Total                                          £ 287147

For Input VAT:

Purchase Book       £115680

Less: Credit Notes  £ 1860

Total                       £ 113820

Cash Book              £ 7950

Petty Cash Book     £160

EU Acquisitions     £ 23650

Bad Debt Relief     £ 6960

Grand Total                                              £ 152540

2.2 Calculation of relevant inputs and outputs

VAT payable:

Sales

Sales Value (£)

VAT Payable (£)

Standard Supplies

180600

17835.5

Exempt Supplies

25450

       -

Zero Rated Supplies

30900

       -

Exports

16946

      -

 

Sales Book              £ 18110.50

Less: Credit Note    £ 275.00

Total                       £ 17835.50            

Cash Book              £ 960.50

EU Acquisitions     £ 2110.00

Correction of error £ 175.69

Grand Total                                          £ 21081.69

Input VAT:

 

Purchase

Purchase Value (£)

VAT Input (£)

Standard Supplies

75260

10325

Exempt Supplies

15620

       -

Zero Rated Supplies

12960

       -

Exports

9980

       -

 

Purchase Book       £10500

Less: Credit Notes  £ 175.00

Total                       £ 10325.00

Cash Book              £ 750

Petty Cash Book     £15.95

EU Acquisitions     £ 2110.00

Bad Debt Relief     £ 675.00

Grand Total                                              £ 13875.95

Input Tax:

  • Purchase Day Book contain £10500 of total input and the figure of £175 is the input VAT total of purchase return day book out of which £10325 whole is standard supply input.
  • Cash Book contain £ 750 and Petty Cash Book contain £ 15.95 are taken from the total of the VAT analysis column of the cash book.
  • EU Acquisition are the purchases made from another EU state.
  • Bad debt relief is a amount owing which a supplier writes off in the books because the bad is unlikely even to be paid off- the buyer may have 'gone bust' for example.

Output Tax:

  • Sales Day Book contain £ 18110.50 of total output and the figure of £275 is the output VAT total of sales return day book out of which £ 17835.50 whole is standard supply output.
  • Cash Book contain £ 960.50 which are taken from the total of the VAT analysis column of the cash book.  
  • Correction of error is the case in which business owes a net £ 175.69 which could be caused due to amount of input VAT included has been too high or amount of output VAT included has been too low.

2.3 Calculation of the VAT due to or from the relevant tax authority

The authority for VAT and custom in UK is HM Revenue and Custom. The VAT due to or from is analysed by HMRC only. The calculations of VAT due to or from HMRC in the given case are as follows:

Particulars

Amount (£)

VAT output:

 

Sales

17835.5

Cash Book

960.5

EU Acquisitions

2110

Correction of error

175.69

Total VAT output

21081.69

VAT Input:

 

Purchase

10325

Cash Book

750

Petty Cash Book

15.95

EU Acquisition

2110

Bad Debts Relief

675

Total VAT Input

13875.95

Net VAT Payable to HMRC

7205.74

 

2.4 VAT Return with associated payment within the statutory time limits

                                     VAT Return

Particulars

Amount (£)

VAT due in on sales

18971.69

VAT due on acquisitions from other EC Member State

2110

Total VAT due

21081.69

VAT input including acquisitions from the EC

13875.95

Net VAT to be paid to HMRC

7205.74

Total value of sales and all other output

256658

Total value of purchases and all other input

113820

Total value of all supplies of goods and related costs, excluding any VAT, to other EC Member States

265517

Total value of all acquisitions of goods and related costs, excluding any VAT, from other EC Member States

128890

 

Return for the quarter ended 31st December 2018 will have to submit to HMRC till 7th February, 2019 and the payment of £ 7205.74 is also required to pay till 7th February, 2019 otherwise penalties will have to be paid by the organization.

3.1 Implications and penalties in case of failure to abide by VAT regulations:

Following are Implications and penalties in case of failure to abide by VAT regulations, as follows:

  • Late filing: In US tax system there are no penalties are provided in case of late filing of VAT return however there is penalty for non payment or late payment of VAT.
  • Late payment: A Surcharge Liability Notice may be issued if there is one return is missing, if this problem remain, a  penalty will be charged. If criteria of Surcharge Liability Notice are not met a surcharge of 2% of the VAT due will apply and it will increase to 5%, 10% or 15% in case mistake is repeated or an extended Surcharge Liability Notice will be issued.
  • Late  registration: There is no penalties are prescribed in case of late VAT registration. Late VAT payment penalties for time duration in which you are not VAT  registered will be  fined as follows:Less than 9 months late: 5% of VAT due, 9 to18 months late: 10% of VAT due and more than 18 months late: 15% of VAT due.

3.2 Adjustments and declarations for any errors or omissions identified in previous VAT periods:

There are following are major ways in terms of Adjustments and declaration required in case of any error or omission, as follows:

  • Error correction in case of any previous year return is done through form VAT 652, This is available on government' official site website or user can use VAT Helpline numbers.
  • Rectification of error related to claiming of excessive input credit can be claimed through transitional arrangements.
  • Some time government also give relief by introducing temporary scheme for correction of particular error to an extent.

4.1 Impact of VAT payment on an organisation’s cash flow and financial forecasts:

Following are the major impact of VAT payment on organisation's cash flow and financial forecasts, as follows:

  • Due to sudden imposition of any penalty for error about which management is unknown can affect cash flow or financial forecast.
  • Imposition of increased VAT rate on product can affect financial forecast of managers.
  • In case of organisation that has large amount of credit sales and purchase, liability of VAT payment affects its cash flow because of late payment or receipt from or to parties.
  • Any sudden Demand notice from VAT authority also increases the payment towards consultants and legal charges which also affects cash flow of organisation.
  • Due to regular payment of VAT some times organisation may face working capital requirements which may lead to decrease in cash flow.
  • Carry forward of inputs and outs in VAT system form one quarter to another quarter creates uncertainties for management while preparing cash flow and financial forecast.

4.2 Advise for relevant people regarding changes in VAT legislation affecting organisation:

Government create changes time to time by issuing circulars or notification, which affects various interested person in an organisation such as accountant, managers, related parties, suppliers etc. Accounts should aware about recent updates, changes in VAT legislation and amendment in filing dates etc. in order to avoid any error and difficulties in filing of VAT returns. It is advised to manager to keep a provision for any sudden possible financial burden in the context of VAT and also managers should make analysis to identify any possible liability of VAT due to change in VAT legislation. Suppliers associated with organisation should make proper arrangements to make easier the way of filing while avoiding any mismatch in input and output under VAT system. Coordination between organisation and suppliers are necessary in order to avoid any discriminations.

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