Assignment on Indirecxt Tax (pdf)

INDIRECT TAX

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Understanding of VAT regulations..............................................................................................1
1.1 Identification of sources of information on VAT.................................................................1
1.2 Explanation on interaction of organisation with relevant government agency.....................1
1.3 VAT registration requirements.............................................................................................2
1.4 The information that must be included in business documentation of VAT registered
business.......................................................................................................................................2
1.5 Explanation of following VAT schemes...............................................................................3
1.6 Maintaining an updated knowledge of changes in codes, regulations and rules in
legislation....................................................................................................................................4
2. Complete VAT return in prescribed time limit............................................................................4
2.1 Extracting relevant data for a specific period from accounting period.................................4
2.2 Calculating relevant inputs and output using VAT classifications.......................................4
2.3 Calculating VAT due to, from the relevant tax authorities...................................................5
2.4 Completing and submitting VAT return and other payment within prescribed time limit. .6
3. Understanding VAT penalties and adjustments for errors...........................................................7
3.1 Implications and penalties for an organisation from non compliance of VAT regulations. .7
3.2 Adjustments and declarations for errors and omissions in previous VAT periods..............7
4. Communicating VAT information...............................................................................................8
4.1 Informing managers about the effect VAT payment cash flow and financial forecasts......8
4.2 Effect of change in VAT legislation on organisation's recording system.............................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Indirect tax is the type of tax which is collected by intermediary such as retail stores from
consumers who bears the ultimate economic burden of tax. In this report, explanation will be
developed on indirect tax that is VAT (value-added tax). Its sources of information and
requirements for registration will be discussed. Further, in this assessment, different schemes of
VAT will be discussed which required in reporting. Penalties and adjustments to rectify VAT
error will be discussed in context of organisation. Lastly, in this report information will be
provided on impact of VAT payment on organisation's cash flow and financial forecasting.
1. Understanding of VAT regulations
1.1 Identification of sources of information on VAT
It is the type of consumption based tax which added to goods and services and to
product's sales and price (Zu, 2018). Throughout the production process of company it gets
charged. VAT is an invoice-based tax which charge by each seller in their product chain to
buyer's invoice. It is also known as destination based tax because tax rate is charged according to
the location of consumer. It is first implemented by two countries that is France and Germany
which is in the form of general consumption tax.
Initially VAT only charged by large type of businesses but with the passage of time it
gets extended in every business sector. Therefore, as of 2018, approximately 193 countries have
applied this tax including OECD member of united states. For calculating VAT, there are two
such methods which includes credit-invoice and invoice-based method. Credit-invoice method is
used to record sales transaction of business and invoice-based method is most widely used and
among in all the countries of the world. VAT amount is decided by states in percentage form and
will charge on top services of business (FERREIRA and Veiga, 2016).
1.2 Explanation on interaction of organisation with relevant government agency
Every type of business who engage in providing taxable goods and services and whose
turnover exceeds £85000 must have to registered themselves for VAT. Business whose turnover
is less than the threshold limit may also apply under voluntary registration of VAT. Currently its
default rate is 20% which may reduced from 5% to 0%. It is also known as one of the key
consideration for every size of business.
Organisation who have registered for VAT must have to reclaim for any amount which
they have paid for business related goods and services. Businesses must have to pay amount of
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VAT which they have charged on their goods and services (Adam and Roantree, 2015). The
deadline which set by government agency that is HM revenue and commission for filling VAT
return is first calendar month or 7 days after the end of accounting period. Companies which are
engaged in following conditions also have to registered under VAT.
 Company have provided an impression of large business.
 Have build trust of company
After successful registration, entities are liable towards government agency in order to charge tax
on their goods and services and pay it them.
1.3 VAT registration requirements
Companies must have to registered for VAT when their turnover exceed £85000 with the
period of next 30 days. If total turnover of company in last 12 months exceed thresholds limit
then also business have to compulsory register under VAT. Entities and suppliers also have to
registered under VAT if they sell goods and services which are exempt but buys for more than
£85000 to use in business. Threshold limit was based on taxable turnover of VAT. If goods have
been received from EU which is of more than £83000, then also entity have to registered under
VAT.
Businesses in which goods are exempt did not have to registered themselves under VAT.
Distance selling goods will also take place for business which have registered for selling goods
to country other than EU (Harju, Matikka and Rauhanen, 2015). Companies which do not have
any physical presence but they are doing business in market than they have to provide complete
details and market price of such businesses. Foreign businesses which is not established in UK
must also have to submit their VAT registration application to HMRC under form VAT1. In
order to registration, taxpayer needs to provide details including unique tax references numbers.
For every type of businesses, different VAT rates have been provided by the government agency.
1.4 The information that must be included in business documentation of VAT registered business
A VAT registered business entity must fulfil all the requirements regarding the
documentation. A business organisation must keep records and detailed information of VAT of
about 6 years or 10 years in special cases when company using VAT MOSS service. The
information can be record digitally or manually totally on the preferences of the business entity.
Invoices are the main important part of obtaining records related to VAT. It is the legal
evidence and source of proof for the tax authority that company have adequately and sufficiently
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