Indirect Tax Report: VAT Implications for Morrisons

This report provides a comprehensive analysis of Value Added Tax (VAT) and its implications, using Morrisons as a case study. It begins with an introduction to VAT, its origins, and the governing legislation, including the VAT Act 1994. The report then delves into various sources of VAT information, such as statute law, case law, HMRC manuals, and online resources. It explains how organizations should interact with the relevant government agency, HM Revenue and Customs (HMRC), and details VAT registration requirements, including compulsory and voluntary registration thresholds. The report identifies the essential information that must be included on business documentation for VAT-registered businesses, such as invoices. It explores different VAT schemes, including annual accounting, cash accounting, flat rate, and the standard method, outlining their reporting requirements and frequencies. The report emphasizes the importance of maintaining up-to-date knowledge of changes to codes of practice, regulations, or legislation. Furthermore, the report discusses the implications and penalties for organizations that fail to abide by VAT regulations, as well as the procedures for making adjustments and declarations for errors. Finally, it addresses the need to inform managers of the impact of VAT payments on cash flow and financial forecasts and to advise relevant people of changes in VAT legislation. The report concludes with a summary of the key findings and recommendations.

Indirect Tax
Table of Contents

Introduction......................................................................................................................................1
LO 1.................................................................................................................................................1
1.1 Different sources of information on VAT.............................................................................1
1.2 Explain how an organisation should interact with the relevant government agency............2
1.3 Explain VAT registration requirements................................................................................2
1.4 Identify the information that must be included on business documentation of VAT
registered businesses...................................................................................................................3
1.5 Requirements and frequencies of reporting of VAT in different VAT schemes..................4
1.6 Maintain an up-to-date knowledge of changes to codes of practice, regulation or
legislation....................................................................................................................................5
LO 2.................................................................................................................................................5
2.1 Relevant data of company for relevant period......................................................................5
2.2, 2.3 Calculation of relevant inputs and outputs and VAT liability of due to or from tax
authority......................................................................................................................................6
2.4 Complete and submit a VAT return and any associated payment within the statutory time
limits............................................................................................................................................8
LO 3.................................................................................................................................................8
3.1 Implications and penalties for an organisation resulting from failure to abide by VAT
regulations...................................................................................................................................8
3.2 Make adjustments and declarations for any errors or omissions identified in previous VAT
periods.........................................................................................................................................8
LO 4..............................................................................................................................................10
4.1 Inform managers of the impact that the VAT payment may have on an organisation’s cash
flow and financial forecasts......................................................................................................10
4.2 Advise relevant people of changes in VAT legislation which would have an effect on an
organisation’s recording systems..............................................................................................10
Conclusion.....................................................................................................................................10
REFERENCES..............................................................................................................................11
.......................................................................................................................................................11

Introduction
VAT is an European tax that was introduced in UK when UK joined common market in
1973. It is recorded from European community directives and was implemented in UK national
law. Currently the legislation that is governing VAT is VAT act 1994. The current report
contains the case of Morrisons which is a public company having its headquarter in England and
currently working in retail segment. Company is around 120 year old and has around 550 stores
in UK. This report is based on basic concepts of VAT and its implications. Also VAT act would
be defined and how it helps in calculation of companies VAT liabilities. Also various methods of
calculation of VAT would be done. Also different sources through which VAT would be
calculated is analysed. Various requirements that are to be fulfilled by company so as to register
for VAT is specified. At last useful information on VAT would be communicated to managers of
company.
LO 1
1.1 Different sources of information on VAT
Indirect tax is a source of revenue generation for government of any country through
different mediums. This is considered as tax which is applied on the goods and services that
consumers buys from the seller. In this the final burden to pay tax is on consumers. The
directives of VAT is describes by the European union and principles of VAT regimes is to
adopted by its members state. This act was introduced in UK in the year 1973, which is
administer by HM revenue and Customs (Abbott and Bogenschneider, 2018). There are different
sources of VAT through which an organisation can get information. These sources helps them to
achieve the target of gaining information on VAT. As basic structure of UK tax system is
established from statute and case laws. The department that has been made by government that
gives guidance on laws made related to indirect tax is HMRC. So various sources of information
on VAT includes the following:
 Statue law and case law: This is the law that contains all the main provisions related to
tax. It is described as the raw law that is directly communicated by government and has
set of rules and procedures that are to be followed by every registered tax payer.
 Statement of practice: This statement of practice is issued by HMRC which helps every
tax payer to have information on how computation of law has to be done and how the tax
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should be interpreted. This also defines how practice should be done by companies while
performing their routine work.
 Internal HMRC manuals: These are the manuals that are issued by HMRC which helps
the companies to gain information on what are the changes that has been made in the
indirect tax rules.
 Websites leaflets and booklets: As various sites have been developed by departments that
helps as a source of information to companies while practising. This also helps in getting
registration done through electronic medium.
1.2 Explain how an organisation should interact with the relevant government agency.
Government is the source of information that enables the companies to gain information
as when needed by them. As their function is vast in nature so they have made an institution
named HMRC which helps various companies to interact with government. This institution helps
tax payers to pay tax and to ask questions that are related to their returns filing procedures and
the amount of return that has to be filed. Under HMRC there are various departments made
which helps companies to interact easily with each other (Beneke, Lustig and Oliva, 2017). 25
ministerial departments are made by government which helps them to administer and pay debts.
The company can also interact with the governmental agencies through various websites which
are developed by them. Also department has provided the option of post which helps various
organisation to communicate with them. The taxpayers can login to their portal that involves the
chat box through which they can get their queries resolved. The HMRC department is open
throughout the week on different timings like from Monday to Friday till 8 am to 8 pm while on
Saturday till 4pm and on Sunday from 9 am to 5 pm. It only closes on bank holidays and and on
any other occasion that is public holiday.
1.3 Explain VAT registration requirements
Registration fro VAT is an important task that is to be compulsorily done by the company
if threshold that has been prescribed by government has been reached. For any company to be
registered under the VAT they have two options that includes compulsory registration or the
Voluntary registration that is done by the company on its own. The threshold limit that has been
prescribed by department is Euro 85,000 (Boadway and Pestieau, 2011). For registering for
VAT the company has to apply to HMRC. In this the department has established different tools
that helps the company to make registration for VAT. The department has also made these rules
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flexible through which they can file their returns. There are certain implication if the company
wants to apply for registeration of VAT. If company wants to apply for an exception then they
have to do this through the process of Post by filing the form VAT1. Also this would apply if
company wants to apply for Agriculture flat rate. After filing this the company can get VAT
registration number from HMRC.
1.4 Identify the information that must be included on business documentation of VAT registered
businesses
As and when company gets the registered on portal of VAT and gets the VAT
registration number then they can issue VAT invoice (Bucheli and et. al., 2013). Company has
now a responsibility of issuing VAT invoice to every customer that they have. Also company has
to follow different regulations while operating there obligations. The company has to follow
different rules to issue invoice which consist of following rules and regulations:
 A serial number on the bill.
 The invoice must include the time of supply
 The date of issue of invoice must be mentioned on the top of invoice.
 The invoice must contain name, address and registration number of the place of business.
 It should also contain the name, address and the registration number of the buyer of the
product.
 Invoice should also contain the type of supply that is made by the company like,
 If it is supply through sale
 whether it is supply on hire purchase
 whether it is supply through loan
 Is it supply through by way of exchange of goods
 Also it should be mentioned that whether it consist of supply by using customer
materials
 Or is it supply made through sale of commission etc.
 The invoice issued must have the description of goods that are supplied to customer.
 It should also specify the rate of tax that has to be paid by customer on every item that
has been purchased.
 Also separate MRP column must be included in invoice that helps customer knowing the
MRP of the goods that they have paid and the amount of VAT that they have prescribed.
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 The cash discount that has been given to the customer should also be separately
mentioned so that they are able to identify the actual cost of product purchased.
Company has to maintain all the records of items and invoices in timely manner it should
be procured for 6 years or as may be identified by HMRC. These would help them to file return
on timely basis and if any fraud is found by organisation then department may order to check the
validity of the records that they have made and the accounts that they have recorded.
1.5 Requirements and frequencies of reporting of VAT in different VAT schemes.
HMRC has made different reporting styles and schemes that should be followed while
furnishing the returns or to follow while performing their daily routine task of selling the
products. These schemes includes the following:
 Annual accounting scheme: This is the scheme that helps small businesses to submit
one returns annually rather than to file four returns. While during the full year they are
required to pay instalments based on the estimated liability for the year with the balance
payment due to them (Dowell, 2013). This scheme helps the business entrepreneur with
budgeting and cash flow and to reduce the paper work. A business entrepreneur that has
the expected turnover of supplies in the next 12 months of amount lower than Euro
13,50,000 can apply for this. Under this the business has to make a monthly payments of
10% of the previous year of liability. This payable at the end of 4-12 months of the
current accounting period. Also application to join this scheme must be made in form
600(AA).
 Cash accounting scheme: This is the scheme under which VAT is paid on the basis of
payment made and received during the month (Reynolds and Smolensky, 2013). This is
the scheme where cash accounting principles are followed and the liability to pay tax
arises when the cash is received for the particular transactions. For registering in this
scheme the company should have a taxable turnover of less than Euro 1.35 Mn over the
next predicted 12 months
 Flat rate scheme: It is the scheme where company has to pay VAT through a fixed rate
of VAT that is prescribed for its business. This scheme is designed for the small business
holder where they have to pay VAT at a pre specified flat rate. Under this the business
cannot claim the VAT on purchases while there is an exception on the purchase of capital
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asset of worth over Euro 2000. here company is eligible to join the flat rate if they have a
turnover of around Euro 150,000.
 Standard method: it is the method that allows the company to record and to report the
VAT on the basis of the invoices issues during the year (Nye, 2018). This is the return in
which company has to submit the return four times in a year on quarterly basis. Also the
refunds for VAT would be demanded on quarterly basis.
1.6 Maintain an up-to-date knowledge of changes to codes of practice, regulation or legislation.
Company should maintain an up to date information on the changes that are made by
department during year so that they comply with the ethical code and the regulation as directed.
As every year rate of tax changes the company should maintain department that is adherers to
these changes made (Flues and Thomas, 2015). If these changes are not followed by company
then it would result in penalties. Government has changed the requirement for disclosure needs
for the companies so they should check and follow these requirements. Also government has
prescribed new rules that helps the companies to fill the return on the online basis.
LO 2
2.1 Relevant data of company for relevant period.
1. Sales revenue for the year amounted to £51,000, of which £45,000 was in regard of
normal rated sales and £4,500 was in respect of zero-rated sales. All of these income
were to non-VAT certified consumers.
2. Sales revenue totalling £120,000 were issued in respect of credit entry sales to VAT
certified consumers. These income were all normal rated. Tesco gives their consumers a
5% discount for payment within 30 days of the date of the sales invoice, and 90% of the
customers pay within this period.
3. Normal rated material measured to £32,000, of which £800 were taken by Tesco for their
private use.
4. Normal rated expenditure amounted to £24,000. This included £1,500 for amusing UK
consumers.
5. On 20 April 2017 Tesco sold a car for £9,000, and purchased a new motor car at a cost of
£16,000. Both cars were used for business concern and personal use, but fuel was bot
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provided for personal use (Flues and Thomas, 2015). These illustration comprises of
VAT where applicable.
6. On 28 April 2017 Tesco sold machine for £4,000, and acquired a new machine at a
expenditure of £21,000. She compensated for the new machine on this date, but did not
take transfer or acquire an invoice until 12 April 2017. These figures are inclusive of
VAT where applicable.
7. On 30 April 2017 Tesco written off damage financial loss in respect of three bills that
were due for payment on 15 August 2017, 15 September 2017 and 15 October 2017
individual. The amount of output VAT primitively paid in regard of each bill was £400.
8. During the month ended 30 April 2017 £800 was spent on mobile telephone calls, of
which 40% relates to private calls.
2.2, 2.3 Calculation of relevant inputs and outputs and VAT liability of due to or from tax
authority.
PARTICULARS AMOUNT IN EUROS AMOUNT IN EUROS
Output tax
Cash sales
(45000*20/%)
9000
Credit Sales
(120000*95%(100-5)*20%
21660
Motor car 0
Machinery
(4000*20/120)
666.67
31326.67
Input tax
Materials
(32,000-800=31200*20%)
6240
Expenses(24000- 4500
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1500=22500*20%)
Machinery
(21000*20/120)
3500
Impairment losses
(400 + 400)
800
Telephone (800 x 60% (100 –
40) x 20%)
96
14336
Total Tax payable 16990.67
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2.4 Complete and submit a VAT return and any associated payment within the statutory time
limits
It is a return that has to be submitted by the company every year or on the monthly basis
depending on the method that they have adopted. This includes the sales and the purchases of the
company (Herger, Kotsogiannis and McCorriston, 2016). The return can be filed online through
the web portal of the department. Companies should file entries in the appropriate boxes and
should pay the liability as and when arises. As in the current case the tax liability for Horrisons
was 16990.67 which they have to pay on online portal.
LO 3
3.1 Implications and penalties for an organisation resulting from failure to abide by VAT
regulations.
There are different penalties that applies to the company if they does not pay there tax
liabilities or if they have not submitted their return on the due date. If the company has not
fulfilled the tax filing obligations then it would result in default. If the company has defaulted
their obligations then it would go into surcharge obligations where the company would be liable
to pay their debts within a period of 12 months and if not paid would result in penalties (Higgins
and Pereira, 2014). The amount of surcharge is calculated on the VAT percentage which is
outstanding on the due date of the accounting period. The rate of percentage increases every time
the default is made by the company. They also charges a penalty up to an amount of 100% of any
tax that is underrated by the company. Also if the company submits a VAT through the process
of post then it would include the penalty of Euro 400 that would be required by the company to
be paid.
3.2 Make adjustments and declarations for any errors or omissions identified in previous VAT
periods.
If a company makes any errors or adjustments while filing the return then they have to fill
a form VAT 652 on the online department (Mason and Stephenson, 2017). This form has to be
filled by the company where they have to fill the boxes and has to describe the transactions or the
invoices that they have not filled. At last the company has to fill the declaration that all the
information that has been provided by the company is true and best to the knowledge.
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Illustration 1: VAT form for filling error
As in the previous year the company has not filled the invoice of the value Euro 150,000
so they have to fill the return on this and they have to pay it within the year so as to get rid of the
penalty.
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LO 4
4.1 Inform managers of the impact that the VAT payment may have on an organisation’s cash
flow and financial forecasts.
As VAT is the main source of income for the government which helps them to develop
the country and to provide benefits to the citizen of the country. The companies that are
registered under VAT has to pay their VAT as and when the liability to pay arises (Kaplanoglou,
2015). VAT has a significant impact on the financial performance of the enterprise as they have
the money that helps them to use it as a capital till the time liabilities to pay does not arises. This
also helps to reduce the cost of the production of the output and has also helped them reduce the
burden that lies on the final consumer. This also helps them to maintain the cash flow
requirements as they are having the cash which is available to them as and when required.
4.2 Advise relevant people of changes in VAT legislation which would have an effect on an
organisation’s recording systems.
VAT is the essential part of any retail company which helps them to collect tax from the
final customers. Every organisation in country has to follow the guidelines that are stated by
government under the VAT act 1994. Also as these acts changes from time to time so company
should check and calculated the amount that is payable by them (Llerena and et. al., 2015). VAT
bill that is generated every year has to be followed by companies so as to fulfil the guidelines
required. As Horisson is working in the retail segment where they have different types of
products so they have to check rate of VAT on timely basis. So the people of companies has to
check and should be updated on timely basis and have to maintain the accounts and invoice in
best way.
Conclusion
From the above report it is concluded VAT is the main source of income of government.
It is liability of the company to pay the tax that has been collected from the sale of goods and
services to the consumers. Company should be up to date about the rules and regulation of VAT
so as to calculate correct VAT liabilities. Company should check on timely basis of the changes
that they have made.
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REFERENCES
Books and Journals
Abbott, R. and Bogenschneider, B., 2018. Should Robots Pay Taxes: Tax Policy in the Age of
Automation. Harv. L. & Pol'y Rev.. 12 . p.145.
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Inequality and Poverty in El Salvador.
Boadway, R. and Pestieau, P., 2011. Indirect taxes for redistribution: Should necessity goods be
favored?.
Bucheli, M., Lustig, N., Rossi, M. and Amábile, F., 2013. Social spending, taxes and income
redistribution in Uruguay. The World Bank.
Dowell, S., 2013. History of Taxation and Taxes in England Volumes 1-4. Routledge.
Flues, F. and Thomas, A., 2015. The distributional effects of energy taxes.
Herger, N., Kotsogiannis, C. and McCorriston, S., 2016. Multiple taxes and alternative forms of
FDI: evidence from cross-border acquisitions. International Tax and Public Finance.
23(1). pp.82-113.
Higgins, S. and Pereira, C., 2014. The effects of Brazil’s taxation and social spending on the
distribution of household income. Public Finance Review. 42(3). pp.346-367.
Kaplanoglou, G., 2015. Who pays indirect taxes in Greece? From EU entry to the fiscal
crisis. Public Finance Review. 43(4). pp.529-556.
Llerena and et. al.,, 2015. Social Spending, Taxes and Income Redistribution in Ecuador (No.
28). Tulane University, Department of Economics.
Mason, A.T. and Stephenson Jr, D.G., 2017. American constitutional law: introductory essays
and selected cases. Routledge.
Nye, J.V., 2018. War, Wine, and Taxes: The Political Economy of Anglo-French Trade, 1689-
1900 (Vol. 20). Princeton University Press.
Reynolds, M. and Smolensky, E., 2013. Public expenditures, taxes, and the distribution of
income: The United States, 1950, 1961, 1970. Academic Press.
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