Indirect Tax on VAT Assignment PDF

INDIRECT TAX

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Sources of VAT information.................................................................................................1
1.2 The way in which an organisation should interact with the relevant government agency....1
1.3 VAT registration requirements.............................................................................................2
1.4 Information that must be included on business documents of VAT registered businesses. .2
1.5 Requirements and frequency of reporting for VAT schemes...............................................3
1.6 Maintaining an up-to-date knowledge of changes to code 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 Calculation of inputs and outputs using VAT classifications...............................................5
2.3 Calculation of VAT due to, or from the relevant tax authority.............................................5
2.4 VAT return and associated payment within the statutory time limits...................................6
TASK 3............................................................................................................................................7
3.1 Implications and penalties for an organisation resulting from failure to abide by VAT
regulations...................................................................................................................................7
3.2 Adjustments and declarations for any errors or omission identified in previous VAT
period...........................................................................................................................................8
TASK 4............................................................................................................................................9
4.1 Impact of VAT payment on organisation's cash flow and financial forecasts......................9
4.2 Advise persons regarding changes in VAT legislation which would have an effect on an
organisation recording system to the concerned people ............................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
An indirect tax is collected by an intermediary from the person who bears the ultimate
economic burden of the tax. Indirect tax is a type of tax where the incidence and impact of
taxation does not fall on the same entity. In this case burden of tax can be shifted by the taxpayer
to someone else. It has the effect to rising the price of the products on which they are imposed.
Indirect tax is collected by one entity in the supply chain and paid to the government but burden
of this tax is passed to ultimate consumer as part of the purchase price of goods and service.
Indirect taxes are sales tax, value added tax (VAT)and goods and service tax (GST). In United
Kingdom value added tax was introduced in the year 1973 and is the third largest source of
revenue for the government (Adema, Fron and Ladaique, 2014). In this project regulations of
VAT, accurate and timely VAT return , VAT penalties and communication of VAT information
is discussed.
TASK 1
1.1 Sources of VAT information
VAT is applied to all the provisions of goods and services. It is collected on the value of
goods or services that have been provided every time when there is a translation of sale and
purchase of goods and services. Information regarding VAT is collected from the sale and
purchase books that are maintained by businesses. As this tax is applied on the sale and purchase
then it information regarding amount of VAT tax that is collected or paid by the company is
calculated by the sale and purchase books. When sales return is received by business entity then
a credit note is issued by the business and amount of VAT collected is reversed. Debit note is
received by the businesses when purchased goods are returned. Both debit and credit note have
effect on the amount of tax that is needed to be paid to the government. So, before settling the
amount of VAT with the government sales and purchase books and debit, credit notes must be
considered. As all these are considered as source of information of VAT amount.
1.2 The way in which an organisation should interact with the relevant government agency
Business organisations operating in the country needs to comply with all the government
rules and regulations prescribed to be followed (Bargain and et.al., 2015). HMRC is the
government institution in UK that deals with various related to tax. Interaction between
businesses and government is done through departments established by HMRC. There are 25
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departments that are established in the country that have direct interaction with businesses. These
departments can be communicated for any issue physically and online also. Qualified and
experienced persons are available there to provide every possible solution to the issue.
1.3 VAT registration requirements
The compulsory registration threshold for VAT in the UK is £83,000 of non-VAT
exempt income per financial year. The registration threshold for distance-selling into the UK is
£70000. the threshold is based on the VAT taxable turnover that means sales that are not
exempted from VAT (Tagkalakis, 2014). Distance selling means when a registered business of
one European Union country sells goods to other country in European Union. To registration of
business under VAT following documents are required-
 National Insurance (NI) number
 Tax identifier i.e. Unique Taxpayer's reference (UTR) number
 Certificate of incorporation and incorporation details
 Business banks accounts details
 Information on all associated businesses within last two years
Some businesses are prohibited from registering under VAT if the business tends to sell
goods or services that are exempt from VAT tax such as insurance and education businesses.
Companies that do businesses with the UK but don't have a physical presence within the UK
needs to demonstrate that they are making sales to UK to have VAT registration. When
registration process is complete then registration certificate is provided to the businesses that
includes VAT number and details regarding submission of first return.
1.4 Information that must be included on business documents of VAT registered businesses
Businesses that are registered under VAT while preparing invoices must include
information that specifies that business is registered. Invoices that are issued by businesses are
considered as business documents. While generating a invoice registration number that is
provided to the business by tax department of VAT must be mentioned. This is a unique number
that is possessed by businesses that are registered under VAT. Government of the country
collects and make refund of the tax collected by business entities on the basis of registration
number. Together with this invoice generated for sale or received by businesses must contain
name of the enterprise that is involved in the transaction. In addition to this information legal
form of the business, location of the business must also be present in documents. Corporate
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