Indirect Tax Models and Policy Analysis

This assignment delves into the realm of indirect taxation, examining various models used to analyze its impact. It covers topics such as consumption models, pro-poor tax reform strategies with a focus on Mexico, and the fiscal effects of immigration in the UK. Case studies on carbon taxes in China and the Value Added Tax (VAT) in India are also analyzed. The assignment emphasizes the crucial role of indirect taxes in shaping economic growth, development, and social welfare.

Indirect Tax

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Sources of information on VAT............................................................................................1
1.2 Organisation should interact with the relevant government agency.....................................1
1.3 VAT registration requirements.............................................................................................2
1.4 Information that must be included on business documentation of VAT registered
businesses....................................................................................................................................2
1.5 Requirements and the frequency of reporting VAT schemes...............................................3
1.6 Maintain an up-to-date knowledge of changes to codes of practice, regulation or
legislation....................................................................................................................................4
TASK 2............................................................................................................................................4
2.1 Extract relevant data for a specific period from the accounting system...............................4
2.2 Inputs and outputs using these VAT ....................................................................................5
2.3 Calculation of VAT due to, or from, the relevant tax authority............................................7
2.4 Complete and submit a VAT return and any associated payment within the statutory time
limits............................................................................................................................................7
TASK 3............................................................................................................................................8
3.1 Implications and penalties for an organisation resulting from failure to abide by VAT
regulations...................................................................................................................................8
3.2 Adjustments and declarations for any errors or omissions identified in previous VAT
periods.........................................................................................................................................8
TASK 4 ...........................................................................................................................................9
4.1 Inform managers of the impact that the VAT payment may have on an organisation’s cash
flow and financial forecasts........................................................................................................9
4.2 Advise for changes in VAT legislation which would have an effect on an organisation’s
recording system.......................................................................................................................10
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
The indirect taxes are introduce as the levies made by state and central government on the
services, consumption, expenditure, privileges and rights yet not on the income or property
(Adema, Fron and Ladaique, 2014). For this report, chosen organisation is Aviva International
Insurance Limited which is a financial service industry and headquartered in London , UK. It
was established in 2000 by Sir Adrian Montague. This report divided into different parts which
includes concept of VAT regulations, and completion of VAT returns in timely and accurate
manner. Along with this, concept of VAT penalties and information related to this also covered
in this report.
TASK 1
1.1 Sources of information on VAT
In the UK, the Value-added tax (VAT) is introduce as the third-largest source of
government revenue and it was introduced in 1973. VAT is administered and gathered by HM
revenue and customs, firstly via the value added tax act 1994. It is levied on services provided by
the Aviva International Insurance Limited and imported from outside the EU. In addition, it is
collected and assessed on the value of services or goods that have been given every time there is
a transaction (Albayrak, 2017). In different countries, VAT are identify as a key revenue sources
as high rate of unemployment and low per capital income give other income sources inadequate.
One of the main source of information on VAT is HMRC pages of the United
Government websites like www.gov.uk. This authority cover entire taxes, where advice, notes,
publications and guidance are present to download. HMRC pages are mainly expect taxpayers to
identify the answers to any questions or queries on their own website (Bargain and et. al., 2015).
Yet, there is web chat facility and telephone enquiry line that can easily deal with unanswered
issues. Taxpayers can also apply an online enquiry form and also write to HMRC pages by post
for guidance.
1.2 Organisation should interact with the relevant government agency
Company should apply different rules and regulations for running their business
operations and activities in specific nation successfully. Government agency related to the value-
added tax is HMRC that play vital role in dealing with different number of taxes such as service
tax, VAT etc. Therefore all these taxes are essential and beneficial for the company to should
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follow this and achieve better outcomes within predetermined period of time (Capéau, Decoster
and Phillips, 2014). HMRC is a government agency that direct interact with the company in
describing different number of indirect taxes including custom tax, VAT, services tax and many
other relevant tax. All these are identify as a main expenditure which should pay by company in
more. Therefore, in this different department of such type of government agency recruit
knowledge and experienced person who can easily solve such type of issue and help them in
accomplishing long term goals and objectives.
1.3 VAT registration requirements
VAT registration is mandatory for any enterprise if they register in this the income earned
in any consecutive 12 month period of time exceeded (Duclos, Makdissi and Araar, 2014). There
are different major requirements and documents for VAT registration which should followed by
each and every organisation. Some requirement are determined as under:
 Incorporation certificate of company
 MoA and AoA is require
 Particulars of employees involved in the organisation
 Address Proof of business owner or director
 Company PAN card or Individual PAN card in case of proprietorship
 ID Proof of business director including different documents such as Passport, Driving
licenses, Election card, Pan Card etc.
 Lease, rental or proprietorship agreement of company
 If business are owned by two and more partners, company should require partnership
deed.
 Passport size photograph is also require by the director of company.
Therefore, above mentioned all these are identify main requirement for an organisation to
register for VAT. It is important and beneficial for the company to charge VAT on services and
goods sold to clients (Dustmann and Frattini, 2014). They also recover Value-added tax charged
on services and goods buy for the businesses from suppliers, other business etc.
1.4 Information that must be included on business documentation of VAT registered businesses
Value-added tax is followed to both services and goods in specific nations and is covered
in the final price of product and service. It is charged at the rate of 12.5%. Along with this, VAT
registered business must gather value-added tax from clients, submit such type of tax return and
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pay any value-added tax that they owe to the revenue division of the ministry of finance. Beside
this, VAT registered company can deduct any kind of VAT that they give when buying services
and goods for the organisation from the value-added tax that they gather from clients. If the VAT
amount that an enterprise gives is more than they gather, the country revenue division will return
the balance (Fabbri, 2015). For example: Business or individuals that sell services or goods
worth approximately $ 500,000.00 or more in 12 month period of time must register for VAT.
Business must also register or listed if they forecast net sales of $ 500,000.00 or addition in a 12
month. Registered business organisation that give up trading or transfer their enterprise must
follow for cancellation of value-added tax registration. Along with, this also follow company that
no longer yield revenue or income above the threshold amount of $ 500,000.00. There are some
importance information that must be included on business documentation (Aviva International
Insurance Limited) of VAT registered businesses are determined as under:
 Completed VAT 1 application form subscribed by business director.
 Completed VAT 2 application form, with the actual names, home addresses and
signatures of each and every directors.
 Accountant’s name, address and contact numbers.
 Main customers’ names, addresses and contact numbers etc.
1.5 Requirements and the frequency of reporting VAT schemes
There are different number of VAT schemes that are require by each and every company.
Value-added schemes are mainly depending on business type and size (Jiang and Shao, 2014).
In Aviva International Insurance Limited, there are some important VAT schemes which are
shown as under:
Standard Value-added tax scheme: It is mainly apply when the invoice is raised. So
when an organisation raise their sale invoice, it would automatically be covered in the next
value-added tax return (Keen, 2013). For example: If an organisation are guilty for putting via all
of their expenditure for value-added tax, whilst keeping back from modifying their sales
invoices, before moving their value-added tax return, to hold their value-added tax as low as
possible.
Flat rate scheme: It introduce as an another important scheme of VAT that HMRC has
given for smaller enterprise. The turnover must be under £150,000 to attend such scheme and if
the turnover rate threshold reaches about £230,000, the company must leave the scheme.
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Sometime, it is essential and important for the company by reducing burden of detail information
related to sales and purchase.
VAT Frequencies: It is identify as an essential for the company to describe their choice
about when they report their VAT returns. Beside this, HMRC can insist that an organisation
follows a monthly reporting frequency if the business director had previously had an entity that
went bankrupt, owing HMRC money (Kumar, 2014). Company can also call for HMRC to align
their value-added tax return reporting time in relation with their accounting year end. Therefore,
this makes it more easier for the financier to reconcile the VAT account at the ending year,
whilst setting the accounts. This can be completed whilst registering for value-added tax.
1.6 Maintain an up-to-date knowledge of changes to codes of practice, regulation or legislation
Changes in code of practice, legislation and regulation are highly effect on business
performance and activities in direct manner. Thus, it is a role of company to should aware and
have up-to-date knowledge about all legislation related to the VAT. It is suggested to have an
appropriate knowledge about different rules and regulations as well as codes of practices also
that are given by the government of UK. Therefore, company should follow all changes in
legislation or regulation systematic and accomplish better results within predetermined time
period (Li and Whalley, 2012). This also supports to keep entire informations about the finance
that relates to taxes in more accurate way. Any modification in the regulations and rules of
government may decrease loop gap that are existing in actual law. Thence for following changes
and variation in regulations more effectively, it is essential to maintain an up-to-date knowledge
and understanding about codes of practices. Chances of errors are reduced and misunderstanding
in the company decrease when each and every people in the business is aware regarding
alteration in the Statute or Civil law. Measurement of taxes according to new legislation also
support to decrease intervention of legal authority in business activities.
TASK 2
2.1 Extract relevant data for a specific period from the accounting system
In the United Kingdom, value-added tax returns can be suggest in monthly and quarterly
basis. Different number of returns are done on a quarterly basis. Following are the identify as an
important details for the extraction of accurate data or information for filing the VAT return for
the quarter ending 31st December.
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2012 Standard-
Rated (£)
Zero-Rated (£) 2012-13 Standard-
Rated (£)
Zero-Rated (£)
January 3200 0 August 5500 100
February 2800 0 September 4300 0
Mar 3300 0 October 12100 0
April 5100 600 November 6900 700
May 2700 0 December 8200 300
June 3700 400 2013
July 3900 200 January 8800 900
2.2 Inputs and outputs using these VAT
According to the provisions of The value-added tax Act, 1994, a gross rate for value-
added tax is about 20% which is relevant at on value of supply services and goods (Littlewood,
Murphy and Wang, 2013). Therefore, there are 3 main rates relevant based on the goods and
services nature: Reduced VAT Rate at 5%, Zero VAT Rate at 0% and Standard VAT Rate at
20%.
Calculation of Relevant Input and Output for Standard Supplies:
Particulars ££ £
Output
VAT Sales 25600
Total Output (A) 25600
Input
VAT Expenses 4960
Machinery 4025
Total Input (B) 8985
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VAT payable [(C)= (A)- (B)] 16615
Interpretation: According to the above information, Input and Output value-added tax is
calculated on sales as well as purchase services and products respectively. The above
calculations have been described taking standard rate at 20%:
Calculation of Relevant Input and Output for Zero-Rated Supplies:
2012 Standard-
Rated (£)
Zero-Rated (£) 2012-13 Standard-
Rated (£)
Zero-Rated (£)
January 3200 0 August 5500 100
February 2800 0 September 4300 0
March 3300 0 October 12100 0
April 5100 600 November 6900 700
May 2700 0 December 8200 300
June 3700 400 2013
July 3900 200 January 8800 900
February 12500 1200
This value has been calculated as follows:
2012 Zero-Rated (£)
March 0
April 600
May 0
June 400
July 200
August 100
September 0
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October 0
November 700
December 300
2013
January 900
February 1200
Total Taxable supplies for year ended February
2013
4400
2.3 Calculation of VAT due to, or from, the relevant tax authority
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
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2.4 Complete and submit a VAT return and any associated payment within the statutory time
limits
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
TASK 3
3.1 Implications and penalties for an organisation resulting from failure to abide by VAT
regulations
PENALTIES: There are different number of penalties on organisation while failure to follow
VAT regulations in UK. Some are determined as under:
Late registration: If company must notify HMRC of its liability to licensed for value-added tax
if they taxable turnover has surpass around £85,000 in the last 12 month period, or if business
believe it will surpass approximately £85,000 in the next 30 days alone. In this case, there are
some penalties for an enterprise are determined as under:
 30 penalty: unprompted to zero; prompted to not less than 10%
 70% penalty: unprompted to not less than 20%; prompted not less than 35%
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 100% penalty: unprompted not less than 30%; prompted not less than 50%
Retention of records: The time period of retaining records is 6 years. There is penalty which is
fixed by amount of £500 for breaching such type of requirement (McNabb and LeMay-Boucher,
2014).
SUGGESTIONS: There are some suggestion to the company about how to reduce burden of
penalties in accurate manner. Few are determined as under:
 Company should follow all rules and regulation time to time, thus, it will help in dealing
with the penalties in more accurate manner.
 Company make sure to get their value-added tax return as well as payment also in on
time. Keep their electronic receipt in case of challenge.
 Company should follow default interest to such errors as well as inaccuracy penalty may
follow if they do not declare errors voluntarily before they have reason to think that
HMRC is making some enquiries into their affairs (Onaolapo, Aworemi and Ajala,
2013).
3.2 Adjustments and declarations for any errors or omissions identified in previous VAT periods
Errors or omissions identified in previous: Disclosure of omissions, errors and many
other type of inaccuracies is needful. Such omission shall be accounted by flowing form
VAT652 and also submitted to value-added tax Correction Team. It is divided into different parts
which such as, an error known that is above the reporting threshold. Along with this, an error or
omission made in a financial time up to four previous years.
The error or omission reporting threshold for each and every enterprise is limited to
around £10,000. Any mistake surpassing this threshold that shall be accountable to HMRC. In
order to calculate error, there is specific formula which are shown as under:
Net Value of Errors = Total Additional tax due to HMRC - Tax Due
Adjustments for errors or omissions identified in previous: According to Section 4 of
Penalties, this section help an organisation to overcome errors in systematic manner. Apart from
this, The VAT Act, 1994, help an organisation because in this adjustments must be develop after
calculating the net value of mistake (Pomeranz, 2015). The amount of adjustment can be covered
in the actual value-added tax giving in various cases are determined as under:
 If the net value of an organisation does not surpassing by the amount of £10,000
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 If the net value relate between the amount of £10,000 and £60,000 but does not surpass
one percent of net outputs given in value-added tax return statement for the time in which
the omission is discovered.
TASK 4
4.1 Inform managers of the impact that the VAT payment may have on an organisation’s cash
flow and financial forecasts
VAT payment and refund affect treasury monthly or quarterly. Thus, if the company
records VAT payment, such type of amount shall be paid in the twenty five days of the pursuing
month. Until that date an organisation will be capable to follow availabilities developed and give
up on loans. Beside this, it will output in increasing financial autonomy as well as also reduce in
the debts rate (Raj, 2017). An organisation benefits from this excess cash-flow for twenty five
days, given that the sales amount to be paid by clients before the time period of first of the
pursuing month. Differently the excess cash-flow shall be decrease in proportion to the different
number of time period delay in payment. Therefore, it is a main advice for the business managers
in order to make sure they kept more aware regarding these variations. Therefore, it would see
flexibility for company to adopt such type of variation so that company can survive in more
effective and accurate manner. In case of enterprise that has maximum amount of credit purchase
and sales, liability of value-added tax payment impacts its cash flow and financial forecast
because of late payment and receipt from or to organisations (Schenk, Thuronyi and Cui, 2015).
4.2 Advise for changes in VAT legislation which would have an effect on an organisation’s
recording system
There are some changes in VAT legislation and how to overcome these, there are few
recommendation to an organisation which are determined as under:
Changes in value-added tax return submission: This is submitted to HMRC via
application programming interface and information is recorded by the digital software (Sehrawat
and Dhanda, 2015). Recommendation to the company to launch making tax digital which will
help in reducing errors and mistakes in more effective manner.
Changes in record keeping system: For complying with digital technology, business
should require to maintain their account on software and spreadsheet which is related with the
HMRC pages with the support of API (Application Programming Interface).
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CONCLUSION
From the above mentioned report, it has been concluded that VAT is essential
requirement for each and every organisation to should follow it and maintain their financial
record in accurate manner. VAT registration is highly require by an organisation to reduce errors
and mistakes in appropriate manner. Taxes that are paid by an enterprise to the legal authority as
VAT can effect on cash flow of an enterprise and thus they must deal in more effective manner
with aim to cope with the difficulties include with the finance related problems.
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