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Indirect Tax Assignment - (Solved)

Added on - 08 Dec 2020

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INDIRECT TAX
Table of ContentsINTRODUCTION...........................................................................................................................11.1 Source of information on VAT.........................................................................................11.2 How organisation interact with government agency........................................................11.3 Requirements of VAT registration...................................................................................11.4 Information that must be included on business documentation of VAT registered business................................................................................................................................................21.5 VAT schemes required for reporting purposes...............................................................21.6 Be aware about relevant changes of legislation and codes of practices...........................3TASK 2..........................................................................................................................................42.1 Extraction of Data from the accounting system...............................................................42.2 Calculation of input and output for various VAT classifications.....................................52.3 Calculating VAT due to/from the relevant tax authority..................................................72.4 Submission of VAT return and any associated payment under statutory time limits......7TASK 3............................................................................................................................................83.1 Implications and Penalties for an organisation resulting from failure to abide by VATregulations..............................................................................................................................83.2 Adjustments and Declarations for any errors or omissions identified in previous VATperiods....................................................................................................................................8TASK 4.........................................................................................................................................104.1 Inform managers of the impact that the VAT payment may have on an organisation’s cashflow and financial forecasts..................................................................................................104.2 Advise for changes in VAT legislation which would have an effect on an...................10organisation’s recording systems........................................................................................10CONCLUSION..............................................................................................................................11REFERENCES..............................................................................................................................12
INTRODUCTIONIndirect tax is collected by a single party whether producer or a retailer after which it ispaid to the government (Keen, 2013). Basically tax burden of such payments lies on finalconsumers whereas retailers or producers act as the intermediaries who handover the collectedamount to the government. Indirect taxes includes sales tax, customs duties on import, exciseduty on production and value added tax (VAT). Since these taxes not directly paid directly to thegovernment that's why it is called indirect tax. This report studies the rules and regulations ofVAT Act along with their computation. Apart from rules, this report also discusses in detail theidentification, adjustments, implications and penalties regarding VAT Returns of current andprevious accounting periods.1.1 Source of information on VATValue Added Tax or VAT is consumption tax which is application on goods as well asservices with its value added on every stage of production from manufacturing to the point ofsale. The amount of VAT Payable by a taxable person is calculated by subtracting inputs usedfor production of goods and services from cost of products. However, VAT is not applicable forall cities, some places are exempted from this tax.Necessary information on is readily available from federal government sites. Anothersource of information is available from HM revenue and customs (HMRC) portals that isresponsible for tax collection across UK. All the relevant information regarding tax or any otherissue for paying tax is considered by the HMRC and it provide solutions to the tax payers.1.2 How organisation interact with government agencyAt the time of VAT registration organisations have to follow the important procedures.These procedures include registration form which is filled by organisation and with the relevantinformation. During registration process, user may face issues which are solved by thegovernment agencies. There are different type of registration form available according to type ofbusiness. For the clarification of that issues government agencies will provide help to thecompany.1.3 Requirements of VAT registrationEvery organisation is required to apply for VAT registration if the company has morethan£85,000taxable turnover. It includes all the items that are sold by the firm and there is no1
VAT exemption except otherwise mentioned. Registration of VAT is done by filling form onlineas well as offline too, mostly business entities such as partnership firms or companies opt foronline registrations for themselves. After registration,an online VAT account is opened with thetax authorities in the name of taxable persons. Organisation can register through agents just toprovide necessary information like VAT returns. After registration company get their valueadded tax number from HM Revenue and Customs (HMRC).Companies can also get themselves registered through offline mode just to fill form, suchas VAT1A form provided for those who are distance sellers, VAT1B I for importers and VAT1Cif company wants to dispose their assets. After completion of VAT registration organisationsreceive their VAT certificates within 30 working days. It is directly sent to their online VATaccounts or by post if registered offline through an agent (Sehrawat and Dhanda, 2015).1.4 Information that must be included on business documentation of VAT registered businessIt is a basic rule in the organizations to maintain business records, mostly in a digitalformat. Therefore, organisations fulfil this requirement very well since recorded evidence oftransactions is easily available to comply with the documentation and registration requirementsof VAT system. A VAT registered business needs to include following information and accountsfor due compliance:Special records for VAT: Generally two types of records are maintained by theorganisation. First one is regarding VAT account and second is VAT invoices. The VATAccount includes the daily business records and VAT invoices is for suppliers. Here, theterm 'invoices' is just a terminology, it only involves information which is specified inVAT rules.Business need to maintain records due to requirement of HMRC such as bank statements,annual accounts, credit or debit notes, import or export documents, invoices, VATaccounts etc.1.5 VAT schemes required for reporting purposesAnnual accounting scheme:- It is a scheme which provides facilities to the organisationto pay their tax on an annual basis. Under this scheme, the taxable person files their VATreturns only once in a year instead on a quarterly basis.Cash accounting scheme:- Usually the amount of difference between sales invoices andpurchase invoices is the net value paid to HMRC as VAT Return (Liand Whalley, 2012).2
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