CIMA F1 Syllabus C. Fundamentals Of Business Taxation - VAT Registration & Exemptions - Notes ^{8 / 10}

Registering for VAT

Once registered the entity must:

1. Charge (output) VAT on its sales

2. Claim (input) VAT back on its purchases

3. Keep VAT records and complete a return every quarter

Rates of VAT

1. Standard rated

   It is a set percentage of VAT that has to be paid on sales. 

   VAT can be reclaimed on purchases.

2. Zero rated

   0% VAT on sales.

   VAT can be reclaimed on purchases.

3. Exempt

   No tax charged on sales.

   No tax reclaimed on purchases.

Partial Exemption

This happens when some of your sales are VATable and some are exempt

• INPUT tax on items for TAXABLE outputs are deductible

• INPUT tax on items for EXEMPT outputs are not deductible

• INPUT tax on REMAINING items are apportioned according to the % of exempt outputs

EXAMPLE

Sales are 100,000 (10% exempt)
Purchases are 40,000 (20% directly related to exempt)

Sales tax rate is 15%.

How much VAT is to be paid if the figures above are all before VAT

ANSWER

Output tax: 100,000 x 15% x 90% = 13,500
Input tax: 40,000 x 15% x 90% x 80% = 4,320

Amount payable = 9,180

VAT inclusive and VAT exclusive

For e.g. A company purchased goods for £20,000 (VAT inclusive)

Rate of VAT is 20%.

What is the VAT amount in this case?

(£20,000 /120) x 100 = £16,667

VAT = £20,000 - £16,667 = £3,333

The company later sold these goods for £30,000 (VAT exclusive).

What is amount of VAT in this case?

It will be £30,000 x 20% = £6,000

Records required for VAT

1. Sales invoices

2. Invoices for non-current asset purchases

3. The VAT accounting records