Understanding Indirect Taxation and VAT Regulations

This assignment provides an overview of indirect taxation, including types such as excise duties, sales tax, and value-added tax. It explains the impact of changes in VAT legislation on business operations and the importance of accounting methods. The document also discusses the role of accountants and tax departments in managing VAT regulations and avoiding penalties.

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 requirement................................................................................................2
1.4 Information that must be included on business documentation of VAT...............................3
registered businesses...................................................................................................................3
1.5 Requirements and the frequency of reporting for these VAT schemes.................................3
1.6 Knowledge of changes to codes of practice, regulation or....................................................4
legislation....................................................................................................................................4
TASK 2............................................................................................................................................6
2.1 Relevant data for a specific period from the accounting system...........................................6
2.2 Relevant inputs and outputs using these VAT classifications...............................................6
2.3 VAT due to, or from, the relevant tax authority....................................................................7
2.4 VAT return and any associated payment within the statutory time.......................................8
limit.............................................................................................................................................8
TASK 3............................................................................................................................................9
3.1 Implications and penalties for an organisation resulting from failure to abide.....................9
by VAT regulations.....................................................................................................................9
3.2 Adjustments and declarations for any errors or omissions identified..................................10
TASK 4..........................................................................................................................................10
4.1 Impact that the VAT payment may have on an organisation’s............................................10
cash flow and financial forecasts..............................................................................................10
4.2 Advise to relevant people of changes in VAT legislation...................................................11
CONCLUSION..............................................................................................................................11
REFERENCES .............................................................................................................................12

INTRODUCTION
Indirect taxes are defined as the tax imposed on an individual or on an organisation that is
finally paid for by some other person. In accounting term, tax is said to be a mandatory financial
accusation that have been imposed on a tax payer by the government that further used to fund
different public expending (Bahl, R., 2018). In general, if tax have impact on one individual and
incidence on the other that kind of taxes are knows as indirect tax. Indirect tax is mainly imposed
on almost each goods and services and allows the tax burden to shift.
In this report, sources of information on VAT, registration requirement and
documentation for VAT, frequency of reporting for value added tax schemes, calculation for
relevant input and output for VAT classification and return and any associated payment within
the statutory time
limits are discussed. Report also shows, implication and penalties for an organisation from
failure to abide by VAT regulation, adjustments and declaration for specific period and advise to
relevant people of changes in VAT legislation.
TASK 1
1.1 Sources of information on VAT
A VAT value added tax is defines as a consumption tax which is added to the sales price
of a commodity. It basically represent the value added to a good throughout its manufacture
process. In UK the VAT was introduced in 1973 and is consider to be third largest source of
revenue to the government after income. There are different types of sources of information on
VAT that should be known by the administration of company which further support them to
exactly know about the procedure of tax implementation and manner how government collect
VAT.
1.2 Organisation should interact with the relevant government agency.
In present era, it is very significant that an organisation operating business in a country
like UK must have full information about laws and procedure and follow certain rules and
standard imposed by government while operating business. In UK government have founded
HMRC known as Her Majesty's revenue and customs that is a non-ministerial department which
is responsible to collect tax (Cnossen, 2013). It also support companies or taxpayers to pay
imposed tax and in case have any issue must ask to HMRC to resolve the problems occur at the

time of payment of tax. There are different manner that help individual firms or other
organisation which support them to interact with government institution. Organisation can
communicate with UK government agency by different ministerial department that are formed
by HMRC. These department assist firms and companies to acquire the detail knowledge about
the current tax rate, changes in VAT rate and able to pay the outstanding debt. Sometime it is
also assumed that if an organisation is facing any problems related to imposed tax rate or having
issue in calculation then they directly visit to the government site in order to know about the
rules and standard related to tax rate that are fixed by government on particular goods.
Similarly there is another way of interacting with government agency as in case if
company are facing problem related to tax then they could write letter to department or can
Email to get the specific information for certain tax paying situation. To ease the process of
interaction UK government have started sending link for general enquire related to tax rate or
any other relevant information.
1.3 VAT registration requirement
It is observed that for registering for Value added tax an organisation have to apply to
HMRC. There are certain requirement for registration on VAT for both existing and new
businesses that are discussed below:
Existing business:
Companies that are already existing in market and wants to register for VAT must give
evidence of timely payments of income Tax for the last fiscal year (Cnossen, 2013). Restoration
will postulate all liabilities on the older account to be accomplished and the older credentials to
be submitted to the government authority. There are some other requirement such as
 Latest financial statements and projected cash flow for last accounting year.
 Hard copy of papers of registration of the company.
 Tax clearance certificate and
 Current bank statements showing transaction for at lest 3 months.
New businesses:
For the companies setting their new business have some requirement on VAT registration
such as company would have to put forward a provisional financial gain tax return paper and
must give the basic one-fourth payment that where relevant before enrolment. Some other
requirement are:

 Proof of the ownership of the company premises (Delgado, Lago‐Peñas and Mayo,
2015).
 Must provide accurate business plan and estimated cash flow for last year.
 VAT knowledge form and Tax clearance certificate copy.
There are some other requirements for voluntary registration such as business will have to renew
the registration in every twelve months by giving valid notification to the commissioner.
1.4 Information that must be included on business documentation of VAT
registered businesses.
In present time, when businesses registered for VAT some document contain important
information for the better functioning of relevant operation. Thus to assist in a more effective
process, it is required and requested to give complete information must be delivered with each
application that contain includes details such as:
 Date trading commenced.
 Anticipated turnover figures.
 Name of Directors and secretary with other full details
 List showing detail of shareholder and their holding
 VAT number, corporate number and invoice that contain the identification of commodity.
 The detailed about business description for example if company operation are consultant
than they must specify the business activities included such as management consultant.
 Documentation must contain the information about full business address.
 Full descriptive invoice that shows supply of particular product to buyer.
1.5 Requirements and the frequency of reporting for these VAT schemes
In general, the standard accounting scheme of VAT is consider to be a method that help
in reporting frequency of VAT whereby value added is used to be record and paid on the issued
date of invoices. It is observed that company implementing VAT standard accounting schemes
have to submit a VAT return report 4 times in current year. So there are various reporting
schemes that are required to be followed by the individual firm and company while operating
their business operation (Keen, 2013). These are discussed below:
Annual accounting scheme:

According to this scheme established business have to make payment either monthly or
quarterly towards their annually generated VAT bill. It is observed that company have to make
the payment only once a year at the end of accounting period. The payment includes corporation
tax filling date instead company have an annual VAT reporting and payment deadline. The main
requirement of annual accounting scheme is that it support company are able to budget carefully
and payment are spread for whole year that is consider to best for the financial cash flow. In also
allows companies a flexible in payment methods such as either they can make excess payment
or may pay less to HMRC and at the time final payment could pay the remaining amount of ask
for the refund.
Cash accounting scheme:
In this kind of scheme in which business organisation have to give VAT on the grounds
of sales volume that have been earned by company during an accounting year. The main
importance of this scheme is that it provide companies to issue a VAT invoice to slow payer
even in case of company have not received payments. This method as mainly useful for small
businesses as they mainly buy their product on credit basis and provide goods to customer on
credit basis.
Flat rate scheme:
With the help of this method mainly small companies those have annual turnover up to
£150,000 simply pay a percentage of total turnover as VAT. It is observed that companies have
different flat VAT rate according to the types of business they use to run. According to this
method companies have to levy VAT on invoices but don't have to keep an individual account to
record for the VAT details of all purchase and sales (Kenyon, Langley and Paquin, 2012).
1.6 Knowledge of changes to codes of practice, regulation or
legislation.
Code of practice: The code of practice is defined as the industry regulation of activity
operated within an organisation. There are basic guidelines that support in fair dealing among an
organisation and their existing and new customer. This are also helpful for customer has these
codes give exact knowledge about the business operation company have as they are related to a
single business or present the whole industry. So it is very important for customer and business
organisation to know about the changes in code of practice by government as it will support in

smooth functioning. As these codes are code that provide a minimum principle of protection to
the customer.
Regulation or legislation: In order to operate business within a country company have to
follow certain rules and regulation that support in managing and controlling business in effective
manner. Government of UK have imposed certain laws of accounting that help to maintain
financial record and pay taxes accordingly. So it is very important for management of individual
firm or on organisation to keep exact and accurate information about changes made by
government. In case if they miss to have the detail information about changes companies have to
bear penalties and possibility of issues is more (Weber, 2013).

TASK 2
2.1 Relevant data for a specific period from the accounting system.
2.2 Relevant inputs and outputs using these VAT classifications.
VAT payable:
Sales Sales Value (£) VAT Payable (£)
Standard Supplies 180600 17835.5
Exempt Supplies 25450 -
Zero Rated Supplies 30900 -

Exports 16946 -
Sales Book £ 18110.50
Less: Credit Note £ 275.00
Total £ 17835.50
Cash Book £ 960.50
EU Acquisitions £ 2110.00
Correction of error £ 175.69
Grand Total £ 21081.69
Input VAT:
Purchase Purchase Value (£) VAT Input (£)
Standard Supplies 75260 10325
Exempt Supplies 15620 -
Zero Rated Supplies 12960 -
Exports 9980 -
Purchase Book £10500
Less: Credit Notes £ 175.00
Total £ 10325.00
Cash Book £ 750
Petty Cash Book £15.95
EU Acquisitions £ 2110.00
Bad Debt Relief £ 675.00
Grand Total £ 13875.95
2.3 VAT due to, or from, the relevant tax authority.
The legal authority of VAT and custom in UK is HMRC. Thus it is observed that the
VAT due is being examined by HM revenue and custom. The underneath tables shows the
computation of VAT due to or from HMRC in the given case that are discussed below:
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
2.4 VAT return and any associated payment within the statutory time
limit.
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
From the above calculation it has been observed that return for the year ending on 31st
Dec, that will be give to HMRC up-to 7th Feb. It is observed that company have to make payment
of about £7205.74 in this accounting year in case if company is not able to pay the amount then
they have to bear penalties. In order to avoid these charges company follows the VAT Act.
TASK 3
3.1 Implications and penalties for an organisation resulting from failure to abide
by VAT regulations.
Value added tax was introduced by UK government under the VAT act 1994. So it is
necessary for each organisation operating their business in UK to follow rules and regulation
those are part of VAT regulation act. In case if companies are found not obeying and
implementing laws of regulation act they have to bear heavy penalties (Schenk, Thuronyi and
Cui, 2015). It general, one of the most significant manner facilities management of company to
support core business activities to make sure that company must remain under the law also
considering the basic complacence. It is observed that whenever any breach in the VAT act is
found then the business entity have to deliver the charges imposed by government. Penalties for
careless and deliberate VAT accounting error were imposed on tax payers so that they keep in
mind about these charges when dealing with value added tax. Some of these charges are applied
to companies on various condition that are described below:
 Condition 1
An inaccurate documents either amounts that lead to charges such as an understatement
of the person's liabilities to tax or a inflated statements showing uneven loss by the management
of company, or a false claim that showing the repayment of tax.
 Condition 2
Some kind of inaccuracy found by HMRC such as errors made despite taking reasonable
care then no penalty is due, careless mistake than a charge of 30% of the potential lost, deliberate

inaccuracy then the penalty amount is 70% and deliberate and concealed inaccuracy then the
actual charges is equal to 100%
 Condition 3
In case if VAT tax payments are missed for the first time than government use to give
warning to the companies. The HMRC use to give notice for the penalties and provide the time
period to companies or individual firm that is within 12 months of that particular financial year.
In case if government agency found the same error within the accounting record of same
company the surcharge increased by 2 % and penalty also increase by the margin of 5 % every
next time.
3.2 Adjustments and declarations for any errors or omissions identified.
In case if there are certain error or omission identifies by the companies related to their
VAT act then they have to issue a notice that is VAT notice 700/45 that explain the method to
correct the VAT errors and make adjustment or claims (Schneider, 2012). The notice must
explain
 Amend VAT records in case if company identify they contain error.
 Correction of problems that have been discovered by management in the older VAT
return Sent to HMRC.
 In case if company found that there is extra payment then they have to fill a claim, form
for refund.
 If there is an error found by the management that they have not made payment for VAT
return or they miss some amount then they have to pay the remaining amount.
 Sometime companies have to complete VAT return where practices in relation to VAT
are being challenged in the legal assembly.
 It is also observed that reporting threshold means adjustment are made in upcoming VAT
return if amount of error is £10000 or little.
TASK 4
4.1 Impact that the VAT payment may have on an organisation’s
cash flow and financial forecasts.
VAT comes under the indirect tax and it is paid by organisations to the government and it
is a source of revenue for the government and paid on quarterly basis. Credit is allowed to the

business and it makes a time gap between realisation of revenue and sales (Lam and Ravussin,
2017). When sales are made and quarterly returns are filled by corporations as a form of Vat tax
and paid to the government instead of realisation of revenue from consumers. It can reduce the
profits of company because it paid tax and it makes a situation of more cash outflow. Regular
business operations can be affected when company pay taxes in advance before recover from
consumers. It can affect the planning which can be the reason of growth for an organisation.
4.2 Advise to relevant people of changes in VAT legislation.
Financial statements of a business entity depicts the evaluation of VAT for a particular
time era. Evaluation of such statements are depends on rules and regulations that are rendered by
the tax administration of the nation. The variation in VAT legislations will influences the record
systematic body adapted by business entity. For example- While variations in respect of VAT
rates is introduced Tax administration or the variations is introduced with reporting of
transaction by making reporting of all the transaction compulsory. This will have change in the
recording system of the company for the transactions that are related to the businesses. Affect of
change in VAT legislation is taken care by accountants and tax department in the company. As
change in VAT legislation will impact accounting method that is followed earlier by the
businesses. Together with this if the changes that are in regarding to return or rate then tax
department needs to be aware about this change and adequate steps are taken to meet the
required change (Schneider, 2015).
CONCLUSION
In the conclusion, it has been stated that indirect tax are defined as the charges levied by
the state government on the consumption of different commodity, expenditure, rights but not on
property or income of an individual. Excise duties, sales tax or value added tax are some
common example of Indirect tax as they are not imposed directly on the income of income
earner. With the help of different VAT schemes such as cash accounting the income is recorded
when it is actually received and expenses are recorded at the same time. Report also conclude
that if an organisation fail to abide by VAT regulation then they have to bear penalties and
adjustments must be made to avoid any error in last financial year.

REFERENCES
Books and Journals:
Bahl, R., 2018. The Guatemalan tax reform. Routledge.
Cnossen, S., 2013. Tax Coordination in the European Community (Vol. 7). Springer Science &
Business Media.
Cnossen, S., 2013. Tax Coordination in the European Community (Vol. 7). Springer Science &
Business Media.
Delgado, F. J., Lago‐Peñas, S. and Mayor, M., 2015. On the determinants of local tax rates: new
evidence from Spain. Contemporary Economic Policy. 33(2). pp.351-368.
Keen, M. M., 2013. Targeting, cascading, and indirect tax desig (No. 13-57). International
Monetary Fund.
Kenyon, D. A., Langley, A. H. and Paquin, B. P., 2012. Rethinking property tax incentives for
business. Cambridge, MA: Lincoln Institute of Land Policy.
Lam, Y. Y. and Ravussin, E., 2017. Indirect calorimetry: an indispensable tool to understand and
predict obesity. European journal of clinical nutrition. 71(3). p.318.
Schenk, A., Thuronyi, V. and Cui, W., 2015. Value added tax. Cambridge University Press.
Schneider, A., 2012. State-building and tax regimes in Central America. Cambridge University
Press.
Schneider, F., 2015. Size and development of the shadow economy of 31 European and 5 other
OECD countries from 2003 to 2014: different developments?. Journal of Self-
Governance & Management Economics, 3(4).
Weber, D., 2013. Abuse of Law in European Tax Law: An Overview and Some Recent Trends
in the Direct and Indirect Tax Case Law of the ECJ-part 1. European Taxation. 53(6).
pp.251-264.