Indirect Tax INTRODUCTION 3 MAIN BODY3

Indirect Tax INTRODUCTION 3 MAIN BODY3 1 Understand VAT Regulations 3 1.1 Sources of Information on VAT 3 1.2 Interaction of Organisation with Relevant Government Agency 4 1.3 VAT Registration Requirements 4 1.4 Information Included on Business Documentation of VAT Registered Businesses 5 1.5 Requirements and the Frequency of Reporting for VAT Schemes 5 1.6 Maintenance of Knowledge of Changes to Codes of Practise, Regulation or Legislation 6 2 Complete VAT Returns Accurately and in a Timely Manner 7 2.1 Extract Relevant Data for a Specific Period from the Accounting System 7

Indirect Tax

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1 Understand VAT Regulations.......................................................................................................3
1.1 Sources of Information on VAT.......................................................................................3
1.2 Interaction of Organisation with Relevant Government Agency.....................................4
1.3 VAT Registration Requirements......................................................................................4
1.4 Information Included on Business Documentation of VAT Registered Businesses........5
1.5 Requirements and the Frequency of Reporting for VAT Schemes..................................5
1.6 Maintenance of Knowledge of Changes to Codes of Practise, Regulation or Legislation6
2 Complete VAT Returns Accurately and in a Timely Manner......................................................7
2.1 Extract Relevant Data for a Specific Period from the Accounting System......................7
2.2 Calculation of relevant inputs and outputs.......................................................................7
2.3 Calculation of the VAT due to or from the relevant tax authority820.............................9
2.4 Completion and Submission of VAT Return and Payment Associated within the Statutory
Time Limits..........................................................................................................................10
3 Understanding the VAT Penalties and making Adjustments for Previous Errors......................12
3.1 Implications and Penalties for Organisations which Fails to Follow VAT Regulations12
3.2 Making and Adjusting Previously Identified VAT Errors.............................................12
Communicating VAT Information................................................................................................13
4.1 Informing Managers about the Impact of VAT Payment on Cash Flows and Financial
Forecasts of Business...........................................................................................................13
4.2 Advising Relevant People of Changes in VAT Legislation's Effects on Organisations
Recording System.................................................................................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15
Books and Journals...............................................................................................................15

INTRODUCTION
Indirect Taxes are those taxes which are applied by the State or Central Government on
the Goods and Services and not on the income or property of an individual. These taxes are
added to the price of some goods or services. The example can be custom duty charges, VAT,
CST, imports, excise duty charges, etc. The assignment will focus on VAT, a type of Indirect
Tax. VAT stands for Value Added Tax. As from its name it is clear that this type of tax is
imposed on the price of a good over its “price value”. In other words, it can be said that the
amount added over the price of a certain good is called VAT. Further this assignment will
provide understanding of different VAT Regulations, and filing the VAT in timely manner, and
the legal actions taken when an organisation fails to follow these regulations.
MAIN BODY
1 Understand VAT Regulations
1.1 Sources of Information on VAT
As for collecting the information or any query related to VAT Charges can be known
from the official website of UK Government. The HMRC (HM Revenue and Customs) Pages of
the website provides all the information regarding all the taxes, and their relevant charges. The
taxpayers whether people or the organisations can find answers to their questions regarding VAT
charges (Avi-Yonah and Clausing, 2017).
A web chat facility is also provided in order to solve the unanswered questions.
Taxpayers can also use online enquiry form or place their questions by writing to HMRC for
guidance or advice on their doubts. The Government is also launching new publications to the
related change if any occur in the tax rates of any good can be easily known by accessing the
official page of HMRC.
Usually the queries of the taxpayers are solved on the website as they put their questions
on the website and also get their answers too there. It also helps in clearing the same queries
which others do have. Moreover, there is also a telephone line where the queries are solved by
contacting via phone and get the answers.
For different types of goods, the amount of VAT charged is different. The tax rates are
classified in three different rates (Bucheli and et. al., 2013). These are the standard rates, reduced

rates and the zero rates. All these details regarding these charges on certain goods are mentioned
over the website.
Another source of information for the companies in UK is publications provided by
IDBE (Inter-Departmental Business Register). Companies can also take information related to
VAT from the publications provided by IDBR(Cornelsen and et. al., 2014).
1.2 Interaction of Organisation with Relevant Government Agency
The organisations can make the payment of their VAT or Sales Tax to this Department.
Companies have to file their taxes to this Department. The companies can also appoint an agent
to deal with HMRC on their behalf such as a professional tax accountant or tax advisor, or
someone from voluntary organisation. For checking the compliance related to tax payments, the
organisations can directly contact to this department. The companies may also put their tax
related disputes and can get satisfactory resolution for them. In addition to this, the Department
is also providing a letter on tax payment by which the companies can appeal against the tax
charged.
Organisations have to file their return to this department and the payment of their bills are
also done here with this Department (Figari and Paulus, 2012). It does not depend whether the
organisation is a joint venture, or partnership or sole trader, all the queries and payments related
to tax are completed here.
1.3 VAT Registration Requirements
There are different requirements for businesses in order to get registered for VAT. Most
of the businesses are registered online such as the partnerships, sole traders, self-employed,
limited companies, trusts, local authorities and a group of companies can also register under a
single VAT Number.
For getting registered for VAT, the first initial requirement is a legal identification such
as I.D. Card or Passport of the applicant in case the company is Limited Liability Partnership
(Higgins and et. al., 2016). The second requirement is the copy of the Memorandum of
Association of the company which it has to submit to the HMRC Department. In addition to this,
some questions will also be asked from the applicant such as the brief of the business going to
start and the activities which will be usually undertaken, the starting date of business or when
will the business start, and any idea of turnover that the business will have. In the documents list,
the National Insurance Number will also be required, Tax Identifier i.e., Unique Taxpayer's

Reference Number (UTR), Certificate of Incorporation, Business Bank Account Details all these
are required and must be provided in front of the Department in order to get registered. Further,
in case the business is already established, the applicant must provide all the information of the
business for the past two years. A business must be registered having a turnover to be more than
of £85,000 within a period of next 30 days. There are also some exemptions where there is no
need to register for VAT so it is necessary to register VAT only in case the business is to sell
goods and services (Jaramillo Baanante, 2013).
1.4 Information Included on Business Documentation of VAT Registered Businesses
The information which are included on the Business Documentation of a business are as
follow as:
 Date of Commencement: The Date when the business was started or will start is to be
provided to the Department.
 Expected Turnover; The applicant must tell the current turnover or the expected turnover
of the business in case the business is newly established.
 Address of Business: The complete address where the business will be situated or is
situated is to be provided to HRMC.
 Contact Details: The mobile number, email address and the website of the business
should be provided for getting registered.
 Full Shareholder Listing and Holding: The name and number of shareholders of the
company should also be stated during the registration(Kaplanoglou, 2015).
 Full Names of Director/Secretary: If the company is a Limited Company than it is a must
to provide the full name of the secretary and director of the company.
 Description of the Business; In order to get registered, the information about the business
activity that it is going to carry on should be mentioned.
1.5 Requirements and the Frequency of Reporting for VAT Schemes
 Annual Accounting Scheme; Generally, the businesses registered under VAT fill their
returns and payments 4 times during a year to HMRC. The Annual Accounting Scheme
provides businesses to pay their annual bills in quarterly or on monthly basis, but they
have to submit only one VAT Return per year. In accordance to this scheme, a VAT
Registered business must submit a VAT Return four times per year(VAT Annual
Accounting Scheme, 2018). For making these advance payments of VAT Bill, the

estimation is made through the payment of last bill and the amount is settled at the end of
year whether the difference is paid by the business or it can apply for Refund in case
more amount is paid.
 Cash Accounting Scheme: The Cash Accounting VAT Scheme is a method in which the
VAT is recorded on the basis of payment made and received. For getting registered under
this VAT Scheme, the business must have a turnover of equals to or less than £1.35
Million. The frequency of submitting VAT in this method is four times a year.
 Flat Rate Accounting Scheme: The Scheme is also known as VAT FRS. Under this
scheme, VAT is paid by the business as a fixed percentage of its annual turnover and the
amount is paid quarterly to HMRC. The scheme was mainly introduced for the small
businesses to reduce the burden imposed while operating through VAT. The requirement
is to be registered under VAT and must have a turnover of under £ 150,000.
 Standard Accounting Scheme: Under this method of reporting VAT, a business records
and pays VAT when it issues invoices whether for purchase or sale. The companies
registered under this scheme submit their VAT Return four times a year. Both the
outstanding and refunds of the companies will be settled on quarterly basis (Lustig and
Higgins, 2013). The requirement to register under this scheme is that the turnover of the
company must be above £1,350,000.
1.6 Maintenance of Knowledge of Changes to Codes of Practise, Regulation or Legislation
Every business wants to avoid the government intervention in its business operations. In
this case of VAT submission, a business must be aware and up-to-date about the changes made
by HMRC in filing the VAT Return and any alteration or addition in the existing laws by HMRC
should properly taken into consideration by the business. It will help in smooth running of their
business and will help in avoiding unwanted fines or penalties. The business should maintain
proper business records and files of return so that the business working can be accomplished
without any problem (Lustig and et. al., 2012). Proper knowledge of Codes of Practise will make
business to run according to the changes made by the Department. It will also enhance the
relationship between the stakeholders and the company. The stakeholders of company will be
satisfied as the image of company is clear in the market. It will also enhance the Brand Image of
the company as there will no difference in the records and the actual working of the company.
The company's accounts are reflecting the same as they are saying. These changes in the

legislation sometimes come up with some opportunities and risks so the help of tax consultant
can be taken to identify the opportunities and avoiding the risks.
The implementation of changes in the policies related top VAT provides many non
financial benefits to the company. One of the main benefit is the improved liability management.
It also helps in reducing the incidents of civil frauds and in creating a good image of the
companies operating well in paying taxes (Lustig, Pessino and Scott, 2014).
2 Complete VAT Returns Accurately and in a Timely Manner
2.1 Extract Relevant Data for a Specific Period from the Accounting System
Example 1- For VAT payable:
Sales Book £ 268475
Less: Credit Note £ 4608
Total £ 263867
Cash Book £ 8952
EU Acquisitions £ 19542
Correction of error £ 1869
Grand Total £ 294230
For Input VAT:
Purchase Book £186920
Less: Credit Notes £ 1920
Total £ 185000
Cash Book £ 8450
Petty Cash Book £140
EU Acquisitions £ 21450
Bad Debt Relief £ 7050
Grand Total £ 222090
2.2 Calculation of relevant inputs and outputs
VAT payable:
Sales Sales Value (£) VAT Payable (£)
Standard Supplies 192600 21950.5

Exempt Supplies 22917 -
Zero Rated Supplies 29850 -
Exports 18500 -
Sales Book £ 22850.50
Less: Credit Note £ 900.00
Total £ 21950.50
Cash Book £ 1085
EU Acquisitions £ 2250.00
Correction of error £ 190.85
Grand Total £ 25476.35
Input VAT:
Purchase Purchase Value (£) VAT Input (£)
Standard Supplies 156240 11260
Exempt Supplies 14130 -
Zero Rated Supplies 13560 -
Exports 1070 -
Purchase Book £11510
Less: Credit Notes £ 250.00
Total £ 11260.00
Cash Book £ 820
Petty Cash Book £28.70
EU Acquisitions £ 2460.00
Bad Debt Relief £ 705.00
Grand Total £ 15273.70
Input Tax:

 Purchase Day Book contain £11510 of total input and the figure of £250 is the input VAT
total of purchase return day book out of which £11260 whole is standard supply input.
 Cash Book contain £ 820 and Petty Cash Book contain £ 28.70 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 £ 22850.50 of total output and the figure of £ 900 is the output
VAT total of sales return day book out of which £ 21950.50 whole is standard supply
output (Raj, 2017).
 Cash Book contain £ 1085 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 £ 190.85 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 (Kumar, 2014).
2.3 Calculation of the VAT due to or from the relevant tax authority820
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 21950.5
Cash Book 1085
EU Acquisitions 2250
Correction of error 190.85
Total VAT output 25476.35
VAT Input:

Purchase 11260
Cash Book 820
Petty Cash Book 28.7
EU Acquisition 2460
Bad Debts Relief 705
Total VAT Input 15273.7
Net VAT Payable to HMRC 10202.65
2.4 Completion and Submission of VAT Return and Payment Associated within the Statutory
Time Limits

3 Understanding the VAT Penalties and making Adjustments for Previous
Errors
3.1 Implications and Penalties for Organisations which Fails to Follow VAT Regulations
The HMRC Department charges different penalties for different types of failures by the
organisations. It penalises the company in case it is unauthorised to issue invoices or is not
registered for VAT and the amount depends upon the disclosure or non disclosure of the fact
about the wrongdoing. The tax rates will increase if the company is not filing their return on
time. Additional Costs will be incurred by the company in case of breach of the legislations
(Mason and Stephenson Jr, 2017). The businesses registered under VAT may face harsh
penalties if any incorrect import data is recorded in the books and the penalty charged can be £
500 for each such misrepresentation of records. It will be charged even if the company is not
involved in any kind of fraudulent activity ever before.
In case when business is going on without approval from HMRC, it will be liable for
criminal conviction and penalty which can be of £ 10,000. Every business can apply before 30th
June of every year in case if the business is of fulfilment business which is started before 1st
April of the same year. The Department can charge a penalty of £ 500 if the business is not
applying for registration before the due date provided by them.
After registering business for VAT, it is the duty of business to make ensure that it is
following the rules and guidelines of VAT in a timely and correct manner. For not following
rules and laws of VAT, the business will be liable to pay surcharge of 2% of the outstanding tax
of the previous year, in case the annual turnover of the company is equal to or less than £
150.000(VAT Returns, 2018).
3.2 Making and Adjusting Previously Identified VAT Errors
Under Section 4, VAT Errors which are made deliberately and carelessly will be liable to
pat the penalty. However, HMRC is also providing grounds to companies for covering their
errors(Correcting VAT errors on a return already submitted, 2018).
In case business find out errors in their VAT records, then they have to inform HMRC
and follow the guidelines mentioned in Section 4 so that corrections can be made (Mills and et.
al., 2012). The help of tax advisor can be taken in order to remove the errors in VAT records.

In case business founds an error recorded incorrectly before submitting the VAT to
HMRC, it can simply keep the records of both errors and actual calculation of VAT and it can
file the correct Return to HMRC.
When errors are made in invoices given to suppliers or customers, such as the calculation
mistake or when price of some products changes frequently, in that case this section does not
apply (Reynolds and Smolensky, 2013). But the only thing is that VAT must be charges as per
the current rate of a certain period.
Communicating VAT Information
4.1 Informing Managers about the Impact of VAT Payment on Cash Flows and Financial
Forecasts of Business
The impact of VAT Payment can be positive and negative both on an organisation. The
company can take out benefit from policies in favour of the company can reduce the bad impact
of VAT policies on their organisation. Taking an example, a company dealing in producing
goods have to purchase raw materials from the suppliers for continuing their production process.
Due to this change, company's VAT Payment amount is increased and company is facing
shortage of working capital to meet their daily expenses. When VAT Rate increases from 7% to
12%, then it will increase the amount of VAT such as from £7000 to £12000. This increment
will impact upon the price of the goods. In addition to this, it will affect the budget preparation of
company, and will also reduce the income and revenue of the company. The financial forecasts
already prepared by the managers will also need to be done again as the VAT Rate changed.
It will affect the Financial Forecasts of business because if the company is offering goods
on credit to their customers for 3 months there is a difference in issuing invoice and getting the
payment from the customer. Also, it is not right to say that the forecast will come true always as
it includes considering many costs such as profit and loss forecast, delivery cost forecast and the
relative change in the VAT Rates in future (Dowell, 2013). So Managers must be aware about all
these facts related the change in VAT Rates making estimation about VAT for future. In this
way, change in VAT Rate impacts upon the financial forecasts and cash flows of an organisation.

4.2 Advising Relevant People of Changes in VAT Legislation's Effects on Organisations
Recording System
The common objective VAT is to simplify tax structure. It is also a source of revenue to
government. The changes in the laws of VAT affects the reporting requirements of a business
and according to these changes companies have to hire related consultants who can guide
companies to deal over the situation such as by centralising tax compliance and Reporting
Process. Companies have to use cloud based solutions in order to deal with such situations.
Proper enforcement of VAT Laws will help in improving the fiscal consolidation strategy of the
country. Further, the changes also help in integrating the better with other countries by making
and adopting according to the changes made in these laws (Jaramillo, 2014).
CONCLUSION
From the above given data, it can be concluded that every organisation should have
proper knowledge of VAT Laws and should submit VAT in a timely and correct way to securing
itself from the government intervention in its operations. Further, paying VAT also helps in
development of country so every organisation operating in a country should contribute to it.
Also, this assignment provides the consequences of non compliance of VAT Laws to an
organisation. So in order to ensure proper working of its operations, it is must to follow and file
right VAT in timely manner.

REFERENCES
Books and Journals
Avi-Yonah, R. S. and Clausing, K., 2017. Problems with destination-based corporate taxes and
the Ryan blueprint. Colum. J. Tax L.. 8. p.229.
Bucheli, M., and et. al., 2013. Social spending, taxes and income redistribution in Uruguay. The
World Bank.
Cornelsen, L., and et. al., 2014. Why fat taxes won't make us thin. Journal of public health. 37(1).
pp.18-23.
Dowell, S., 2013. History of Taxation and Taxes in England Volumes 1-4. Routledge.
Figari, F. and Paulus, A., 2012. GINI DP 28: The impact of indirect taxes and imputed rent on
inequality: A comparison with cash transfers and direct taxes in five EU countries (No.
28). AIAS, Amsterdam Institute for Advanced Labour Studies.
Higgins, S., and et. al., 2016. Comparing the incidence of taxes and social spending in Brazil and
the United States. Review of Income and Wealth. 62. pp.S22-S46.
Jaramillo Baanante, M., 2013. The Incidence of Social Spending and Taxes in Peru (No. 09).
Tulane University, Department of Economics.
Jaramillo, M., 2014. The incidence of social spending and taxes in Peru. Public Finance Review.
42(3). pp.391-412.
Kaplanoglou, G., 2015. Who pays indirect taxes in Greece? From EU entry to the fiscal crisis.
Public Finance Review. 43(4). pp.529-556.
Lustig, N. and Higgins, S., 2013. Commitment to equity assessment (CEQ): Estimating the
incidence of social spending, subsidies, and taxes-handbook.
Lustig, N., and et. al., 2012. The Impact of Taxes and Social Spending on Inequality and Poverty
in Argentina, Bolivia, Brazil, Mexico, and Peru: A Synthesis of Results.
Lustig, N., Pessino, C. and Scott, J., 2014. The impact of taxes and social spending on inequality
and poverty in Argentina, Bolivia, Brazil, Mexico, Peru, and Uruguay: Introduction to
the special issue. Public Finance Review. 42(3). pp.287-303.
Mason, A. T. and Stephenson Jr, D. G., 2017. American constitutional law: introductory essays
and selected cases. Routledge.
Mills, A., and et. al., 2012. Equity in financing and use of health care in Ghana, South Africa,
and Tanzania: implications for paths to universal coverage. The Lancet. 380(9837).
pp.126-133.
Reynolds, M. and Smolensky, E., 2013. Public expenditures, taxes, and the distribution of
income: The United States, 1950, 1961, 1970. Academic Press.
Online
VAT Annual Accounting Scheme. 2018. [Online]. Available Through: <https://www.gov.uk/vat-
annual-accounting-scheme>
VAT Returns. 2018. [Online]. Available Through: <https://www.gov.uk/vat-returns/surcharges-
and-penalties>
Correcting VAT errors on a return already submitted. 2018. [Online]. Available Through:
<https://www.gov.uk/government/publications/vat-notice-70045-how-to-correct-vat-

errors-and-make-adjustments-or-claims/vat-notice-70045-how-to-correct-vat-errors-
and-make-adjustments-or-claims#VAT-errors-submitted>