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AAT TPFB practice questions

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Question 1Principles of VAT (registration, VAT categories, invoicing and record keeping)

From 1 April 2024, what is the compulsory VAT registration threshold for a UK business?

  1. £85,000 of VAT-taxable turnover
  2. £90,000 of VAT-taxable turnover Correct answer.
  3. £88,000 of VAT-taxable turnover
  4. £102,000 of VAT-taxable turnover

Explanation

Since 1 April 2024 a business must register for VAT once its VAT-taxable turnover exceeds £90,000 in any rolling 12-month period. Only taxable supplies count towards the threshold, so exempt supplies are excluded from the calculation.

Question 2Principles of VAT (registration, VAT categories, invoicing and record keeping)

What rate of VAT applies to standard-rated supplies in the UK?

  1. 17.5%
  2. 20% Correct answer.
  3. 0%
  4. 5%

Explanation

The standard rate of VAT is 20% and applies to most goods and services unless a specific zero rate, reduced rate or exemption applies. The reduced rate is 5% and the zero rate is 0%.

Question 3Principles of VAT (registration, VAT categories, invoicing and record keeping)

Which of the following supplies is zero-rated for VAT purposes?

  1. Confectionery
  2. Domestic electricity
  3. Adult clothing
  4. Children's clothing Correct answer.

Explanation

Clothing and footwear designed for young children are zero-rated. Adult clothing and confectionery are standard-rated, while domestic electricity is reduced-rated at 5%.

Question 4Principles of VAT (registration, VAT categories, invoicing and record keeping)

Which of the following is an exempt supply for VAT purposes?

  1. Bread
  2. Books
  3. Insurance Correct answer.
  4. Children's shoes

Explanation

Insurance is an exempt supply, so no VAT is charged on it and the related input tax cannot normally be recovered. Books, bread and children's shoes are all zero-rated rather than exempt.

Question 5Principles of VAT (registration, VAT categories, invoicing and record keeping)

For how long must a VAT-registered business normally keep its VAT records?

  1. 4 years
  2. 6 years Correct answer.
  3. 3 years
  4. 2 years

Explanation

VAT records must generally be kept for six years from the date they were created, unless HMRC agrees otherwise. This allows HMRC to check returns and supports any later compliance enquiry.

Question 6Principles of VAT (registration, VAT categories, invoicing and record keeping)

Which term describes the VAT a business charges its customers on the sales it makes?

  1. Input tax
  2. VAT fraction
  3. Output tax Correct answer.
  4. Reverse charge

Explanation

Output tax is the VAT a business charges on its taxable sales and pays over to HMRC. Input tax is the VAT a business pays on purchases and may recover, subject to the normal rules.

Question 7Principles of VAT (registration, VAT categories, invoicing and record keeping)

Which of the following must be shown on a VAT invoice?

  1. The name of the employee who prepared the invoice
  2. The supplier's VAT registration number Correct answer.
  3. The total number of people the supplier employs
  4. The supplier's bank account details

Explanation

A VAT invoice must show the supplier's name, address and VAT registration number, together with a unique invoice number, the date, a description of the goods or services, the VAT rate and the VAT charged. Bank details, the preparer's name and staff numbers are not required invoice particulars.

Question 8Principles of VAT (registration, VAT categories, invoicing and record keeping)

Below which level of taxable turnover may a VAT-registered business generally apply to deregister?

  1. £90,000
  2. £85,000
  3. £70,000
  4. £88,000 Correct answer.

Explanation

The deregistration threshold is £88,000. A business whose taxable turnover falls below this figure may apply to cancel its registration, although it must do so if turnover falls below the level set for compulsory deregistration.

Question 9Principles of VAT (registration, VAT categories, invoicing and record keeping)

A business's taxable turnover first exceeds £90,000 in the 12 months ended 31 May. From which date is it liable to account for VAT on its supplies?

  1. 1 July Correct answer.
  2. 1 May
  3. 1 June
  4. 1 August

Explanation

Where the threshold is exceeded in a rolling 12-month period, the business must notify HMRC within 30 days of the end of that month and becomes liable for VAT from the first day of the second month after the month in which the threshold was exceeded. The threshold was exceeded in May, so liability starts on 1 July.

Question 10Principles of VAT (registration, VAT categories, invoicing and record keeping)

A trader has reasonable grounds to believe that taxable supplies will exceed £90,000 in the next 30 days alone. From when does the registration take effect?

  1. From the first day of the next calendar quarter
  2. From the day the threshold is actually exceeded
  3. From the date HMRC issues the registration certificate
  4. From the start of that 30-day period Correct answer.

Explanation

The forward-look test requires registration where there are reasonable grounds for believing that taxable supplies will exceed £90,000 in the next 30 days alone. In that case the business is registered from the beginning of the 30-day period.

Question 11Principles of VAT (registration, VAT categories, invoicing and record keeping)

A standard-rated sale is invoiced at a VAT-inclusive total of £2,400. What amount of VAT is included in that total?

  1. £600
  2. £480
  3. £400 Correct answer.
  4. £120

Explanation

The VAT fraction for the 20% standard rate is 1/6, so £2,400 × 1/6 = £400 of VAT. Equivalently, the net amount is £2,000 and 20% of that is £400.

Question 12Principles of VAT (registration, VAT categories, invoicing and record keeping)

Which of the following supplies is charged at the reduced rate of 5%?

  1. Petrol
  2. Books
  3. Domestic fuel and power Correct answer.
  4. Gym membership

Explanation

Domestic supplies of fuel, power and heating are charged at the reduced rate of 5%. Books are zero-rated, while petrol and gym membership are standard-rated.

Question 13Principles of VAT (registration, VAT categories, invoicing and record keeping)

A sole trader buys a car that is used 60% for business and 40% for private motoring. How much of the VAT on the car can normally be recovered?

  1. 100% of the VAT
  2. 40% of the VAT
  3. 60% of the VAT
  4. None of the VAT Correct answer.

Explanation

Input tax on the purchase of a car is blocked unless the car is intended to be used exclusively for business purposes. A car with any private use therefore gives no right to recover input tax, whatever the business proportion.

Question 14Principles of VAT (registration, VAT categories, invoicing and record keeping)

A company takes a group of UK clients to a restaurant and pays the bill plus VAT. How much of that VAT can the company normally recover?

  1. None of the VAT Correct answer.
  2. Half of the VAT
  3. All of the VAT
  4. The VAT relating to the clients' meals only

Explanation

Input tax on business entertaining of UK customers and clients is blocked, so no VAT can be recovered on the restaurant bill. Entertaining overseas customers is treated more generously, but that is not the situation here.

Question 15Principles of VAT (registration, VAT categories, invoicing and record keeping)

A business registers for VAT on 1 July. Three years earlier it bought machinery for £12,000 plus VAT, which it still owns and uses in the business. Can it recover the input tax?

  1. Yes, because goods bought up to 4 years earlier and still held at registration qualify Correct answer.
  2. No, because the purchase was made before registration
  3. Only if the machinery was bought within the last 6 months
  4. Yes, but only 50% of the VAT is recoverable

Explanation

Pre-registration input tax on goods can be recovered if the goods were bought no more than four years before registration and are still owned or held at the date of registration. The same goods must be for business use and the business must keep the relevant evidence.

Question 16Principles of VAT (registration, VAT categories, invoicing and record keeping)

Goods are supplied and delivered on 3 June. The supplier issues the VAT invoice on 10 June. What is the tax point for the supply?

  1. 1 July
  2. 3 June
  3. 30 June
  4. 10 June Correct answer.

Explanation

The basic tax point is the date the goods are made available, but where the invoice is issued within 14 days of that date the invoice date becomes the tax point. Ten June is only seven days after the supply, so the invoice date governs.

Question 17Principles of VAT (registration, VAT categories, invoicing and record keeping)

A customer buys one item from a shop for £180 including VAT and asks for a VAT invoice. What must the retailer provide?

  1. A less detailed VAT invoice, because the sale is under £250 Correct answer.
  2. Nothing, because retail sales are outside the scope of VAT
  3. A full VAT invoice showing unit price and VAT rate separately
  4. A credit note instead of an invoice

Explanation

For retail supplies not exceeding £250 including VAT, the supplier may issue a less detailed invoice showing the supplier's details, the tax point, a description of the goods and the VAT charged. A full invoice is only compulsory above that amount.

Question 18Principles of VAT (registration, VAT categories, invoicing and record keeping)

What is the main benefit of registering voluntarily for VAT when turnover is below the registration threshold?

  1. Input tax on business purchases can be recovered Correct answer.
  2. VAT returns only have to be filed once a year
  3. VAT records no longer need to be kept
  4. Output tax no longer has to be charged to customers

Explanation

Voluntary registration lets a business recover input tax on its purchases, which is useful for businesses that make zero-rated supplies or sell mainly to other VAT-registered businesses. The drawback is that output tax must then be charged and the usual record-keeping and return obligations apply.

Question 19Principles of VAT (registration, VAT categories, invoicing and record keeping)

Which statement about zero-rated supplies is correct?

  1. They are outside the scope of VAT
  2. They are treated in the same way as exempt supplies
  3. They do not need to be recorded in the business's VAT records
  4. They are taxable supplies, so related input tax can be recovered Correct answer.

Explanation

Zero-rated supplies are taxable supplies charged at 0%, so they count towards taxable turnover and the related input tax is recoverable. Exempt supplies, by contrast, give no right to recover input tax.

Question 20Principles of VAT (registration, VAT categories, invoicing and record keeping)

Over the last 12 months a business made standard-rated sales of £78,000, zero-rated sales of £9,000 and exempt sales of £20,000. Must it register for VAT?

  1. Yes, because all sales count towards the threshold
  2. Yes, because total sales are £107,000
  3. No, because only standard-rated sales count
  4. No, because taxable supplies total £87,000 Correct answer.

Explanation

The registration test uses taxable supplies, which include standard-rated and zero-rated sales but exclude exempt sales. Taxable supplies are £78,000 + £9,000 = £87,000, which is below the £90,000 threshold, so registration is not compulsory.

Question 21Principles of VAT (registration, VAT categories, invoicing and record keeping)

By when must a business notify HMRC that it has become liable to be registered for VAT?

  1. Within 30 days of the end of the month in which the threshold was exceeded Correct answer.
  2. By the end of the quarter in which the threshold was exceeded
  3. Within 30 days of the date on which the threshold was exceeded
  4. Within 14 days of the end of the month in which the threshold was exceeded

Explanation

Where the threshold is exceeded in a rolling 12-month period, the business must notify HMRC within 30 days of the end of the month in which the limit was breached. Late notification can lead to a penalty and to VAT being assessed from the correct liability date.

Question 22Principles of VAT (registration, VAT categories, invoicing and record keeping)

A customer has still not paid an invoice on which the supplier has already accounted for and paid output tax. When can the supplier normally claim bad debt relief?

  1. Only once the customer has been declared insolvent
  2. Twelve months after the invoice date
  3. Six months after the due date for payment Correct answer.
  4. Immediately after the due date for payment passes

Explanation

Bad debt relief allows the supplier to recover the output tax, but only once six months have elapsed from the due date for payment. The supplier must also have accounted for the VAT and written the debt off in its accounts.

Question 23Principles of VAT (registration, VAT categories, invoicing and record keeping)

A business receives a deposit from a customer on 12 May for goods that are delivered on 20 June; no invoice is issued until 30 June. What is the tax point for the deposit?

  1. 30 June
  2. 20 June
  3. 12 May Correct answer.
  4. 1 July

Explanation

The tax point is the earliest of the date of supply, the date the invoice is issued and the date payment is received. Because the deposit was paid on 12 May, that payment date creates a tax point for the amount received.

Question 24Principles of VAT (registration, VAT categories, invoicing and record keeping)

How must a VAT-registered business that is within the scope of Making Tax Digital for VAT keep its records and submit returns?

  1. On paper returns only
  2. Through the HMRC portal using spreadsheets without any digital links
  3. Using compatible software that keeps digital records and submits the return digitally Correct answer.
  4. By telephoning the VAT helpline with the figures

Explanation

Making Tax Digital requires VAT-registered businesses within its scope to keep their records in digital form and to submit returns using compatible software. Digital links must be maintained between the underlying records and the figures submitted.

Question 25Principles of VAT (registration, VAT categories, invoicing and record keeping)

A business has received goods from a supplier but no valid VAT invoice is held when it completes its VAT return. How should it treat the input tax?

  1. It must be reclaimed by the supplier instead
  2. It cannot be reclaimed until a valid VAT invoice is held Correct answer.
  3. It can be reclaimed and the invoice obtained at any later date
  4. It can be reclaimed at 50% of the VAT

Explanation

Input tax can only be reclaimed when the business holds valid evidence, which for most purchases is a VAT invoice. If the invoice has not been received, the claim must be deferred until it arrives.

Question 26Principles of VAT (registration, VAT categories, invoicing and record keeping)

What is the standard rate of VAT charged on most goods and services in the UK?

  1. 5%
  2. 15%
  3. 20% Correct answer.
  4. 0%

Explanation

The standard rate of VAT is 20% and applies to any taxable supply that is not specifically reduced-rated or zero-rated. A reduced rate of 5% applies only to the categories listed in the VAT legislation, and the zero rate applies to specified supplies such as most food.

Question 27Principles of VAT (registration, VAT categories, invoicing and record keeping)

How is VAT best described?

  1. A direct tax on the annual profits made by a business
  2. A tax deducted from employees' pay through the PAYE system
  3. An indirect tax on spending, collected by businesses on behalf of HMRC Correct answer.
  4. A local tax charged on the business premises a trader occupies

Explanation

VAT is an indirect tax because it is charged on supplies of goods and services rather than on income or profits. Taxable businesses act as collectors, charging VAT on their sales and passing it to HMRC after deducting the VAT they have suffered on purchases.

Question 28Principles of VAT (registration, VAT categories, invoicing and record keeping)

What does the term 'output tax' mean?

  1. VAT reclaimed on goods and services bought for the business
  2. VAT written off when a customer fails to pay an invoice
  3. VAT charged by a business on its own taxable sales Correct answer.
  4. VAT paid at the border on goods brought in from abroad

Explanation

Output tax is the VAT a business charges on the taxable supplies it makes to its customers. It is contrasted with input tax, which is VAT suffered on purchases, and the business pays HMRC the difference between the two.

Question 29Principles of VAT (registration, VAT categories, invoicing and record keeping)

What rate of VAT normally applies to a supermarket's sale of uncooked food for human consumption, such as bread and vegetables?

  1. 5%
  2. Exempt
  3. 20%
  4. 0% Correct answer.

Explanation

Most food for human consumption is zero-rated, which means VAT is charged at 0% and the business can still recover the input tax on its costs. The zero rate does not extend to excluded items such as catering, hot takeaway food, confectionery, crisps, alcohol and soft drinks.

Question 30Principles of VAT (registration, VAT categories, invoicing and record keeping)

Within what period must a VAT invoice normally be issued after the date of supply?

  1. 30 days Correct answer.
  2. 6 months
  3. 7 days
  4. 3 months

Explanation

A VAT invoice must normally be issued within 30 days of the date the goods or services are supplied. If it is issued later, the tax point generally remains the date of supply rather than the invoice date.

Question 31Principles of VAT (registration, VAT categories, invoicing and record keeping)

A supplier sends a document to a customer before any goods are supplied, asking for payment in advance. Which description fits this document?

  1. A credit note
  2. A self-billed VAT invoice issued by the customer
  3. A pro-forma invoice, which is not a valid VAT invoice Correct answer.
  4. A simplified VAT invoice

Explanation

A pro-forma invoice is a request for payment before a supply takes place and cannot be used to reclaim input tax. A proper VAT invoice must be issued once the supply is actually made.

Question 32Principles of VAT (registration, VAT categories, invoicing and record keeping)

A business submits quarterly VAT returns. By when must each return normally be filed?

  1. By the 14th day of the following month
  2. Within 7 days of the end of the period
  3. One calendar month after the end of the period Correct answer.
  4. Within two months of the end of the period

Explanation

A quarterly VAT return must normally be filed within one calendar month of the end of the return period. Where the VAT is paid electronically, the payment deadline is a further seven days after the filing deadline.

Question 33Principles of VAT (registration, VAT categories, invoicing and record keeping)

When calculating taxable turnover for VAT registration purposes, which of the following is included?

  1. The value of exempt sales
  2. The VAT charged to customers
  3. The value of a private individual's own possessions sold at a car boot sale
  4. The value of zero-rated sales Correct answer.

Explanation

Taxable turnover covers the value of standard-rated, reduced-rated and zero-rated supplies made in the course of business. Exempt supplies and the VAT itself are excluded from the calculation, as are private sales outside the business.

Question 34Principles of VAT (registration, VAT categories, invoicing and record keeping)

A business makes only zero-rated supplies, but its taxable turnover has exceeded the £90,000 registration threshold. What is its position?

  1. It must register and charge VAT at the reduced rate of 5% on all of its sales
  2. It must register and charge VAT at 20% on all of the sales it makes
  3. It is liable to register, but may apply for exemption from registration Correct answer.
  4. It cannot register for VAT under any circumstances, even if it wants to

Explanation

A business whose taxable turnover exceeds the threshold is liable to register even where all its supplies are zero-rated. However, because it would be in a repayment position, it may apply to HMRC to be exempted from registration.

Question 35Principles of VAT (registration, VAT categories, invoicing and record keeping)

A business registered for VAT on 1 September. On 1 June it had paid £2,400 of VAT on professional fees for services supplied to it for business purposes. Can the VAT be reclaimed?

  1. No, because the services were supplied before the registration took effect
  2. Yes, if claimed under the six-month pre-registration services rule Correct answer.
  3. Yes, but only if the business uses the cash accounting scheme
  4. Yes, but only if the services cost more than £2,000 each

Explanation

Input tax on services bought for the business in the six months before the effective date of registration can be recovered, provided they relate to taxable business activity and a valid VAT invoice is held. Goods bought before registration are subject to a longer four-year rule.

Question 36Principles of VAT (registration, VAT categories, invoicing and record keeping)

A customer returns faulty goods that were already invoiced with VAT. What document should the supplier issue to adjust the VAT?

  1. A credit note reducing the VAT previously charged Correct answer.
  2. A debit note showing the VAT now due
  3. A revised pro-forma invoice
  4. A statement of account

Explanation

A credit note is issued to reduce the amount previously invoiced, including the VAT, when goods are returned or the value of a supply is reduced. Both the supplier and the customer adjust their VAT records to reflect the reduction.

Question 37Principles of VAT (registration, VAT categories, invoicing and record keeping)

What is the main effect of using the VAT cash accounting scheme?

  1. All sales are treated as zero-rated
  2. No VAT is charged on supplies to other VAT-registered businesses
  3. VAT is only paid once a year
  4. VAT is accounted for when invoices are paid rather than issued Correct answer.

Explanation

Under cash accounting, output tax is accounted for when customers pay and input tax is recovered when suppliers are paid, rather than when invoices are issued or received. This can help cash flow and gives automatic relief where a customer does not pay.

Question 38Principles of VAT (registration, VAT categories, invoicing and record keeping)

How does the VAT flat rate scheme work?

  1. VAT is charged as normal but a fixed percentage of turnover is paid to HMRC Correct answer.
  2. The business pays HMRC a fixed annual amount and keeps all the VAT it charges its customers
  3. The business charges a flat 5% rate on all its sales
  4. The business does not need to register for VAT while using the scheme

Explanation

Under the flat rate scheme the business still charges VAT at the normal rate on its sales, but pays HMRC a flat percentage of its gross turnover instead of the difference between output tax and input tax. Input tax recovery is generally restricted to capital assets costing £2,000 or more.

Question 39Principles of VAT (registration, VAT categories, invoicing and record keeping)

A business makes both taxable and exempt supplies. What is the usual treatment of its input tax?

  1. Input tax is recovered in full only when the business uses the flat rate scheme for all its sales
  2. Input tax on taxable supplies is recoverable; input tax on exempt supplies is not Correct answer.
  3. Only input tax on sales made to other VAT-registered businesses is recoverable
  4. All input tax can be recovered in full, however much the business sells

Explanation

This is partial exemption. Input tax directly attributable to taxable supplies is recoverable, that directly attributable to exempt supplies is not, and residual input tax is recovered by apportionment or under the de minimis rules.

Question 40Principles of VAT (registration, VAT categories, invoicing and record keeping)

A UK VAT-registered business buys advertising services from a supplier based in Germany for use in its UK trade. Who accounts for the VAT due on the supply?

  1. The German supplier registers for UK VAT and charges UK VAT to the customer
  2. No VAT arises because the supplier is based outside the UK
  3. HMRC charges the UK business a special import tax instead of VAT
  4. The UK business accounts for the VAT itself under the reverse charge Correct answer.

Explanation

For business-to-business services, the place of supply is normally where the customer belongs, so the supply falls within the scope of UK VAT. The UK business accounts for the VAT as output tax under the reverse charge and normally recovers the same amount as input tax.

Question 41Principles of VAT (registration, VAT categories, invoicing and record keeping)

A VAT return shows output tax of £9,000 and input tax of £11,500. What is the usual outcome?

  1. The return is rejected because input tax cannot exceed output tax
  2. The business pays £2,500 to HMRC
  3. The £2,500 is carried forward and can never be repaid
  4. HMRC repays the £2,500 difference to the business Correct answer.

Explanation

Where input tax exceeds output tax in a period the return shows a repayment position, and HMRC normally repays the difference. A business can ask for the amount to be set against a future liability instead, but repayment is the default.

Question 42Principles of VAT (registration, VAT categories, invoicing and record keeping)

Which statement about exempt supplies is correct?

  1. No VAT is charged and related input tax is generally not recoverable Correct answer.
  2. VAT is charged at 5% and input tax can be recovered
  3. VAT is charged at 0% and input tax can be recovered
  4. No VAT is charged and input tax can always be recovered

Explanation

Exempt supplies, such as most insurance and financial services, are within the scope of VAT but no VAT is charged on them. Because they are not taxable supplies, the input tax relating to them cannot normally be recovered.

Question 43Principles of VAT (registration, VAT categories, invoicing and record keeping)

What is the maximum VAT-inclusive value of a supply for which a retailer may issue a simplified VAT invoice?

  1. £250 Correct answer.
  2. £1,000
  3. £100
  4. £50

Explanation

Retailers may issue a simplified VAT invoice for supplies with a VAT-inclusive value of up to £250. Such an invoice must still show the supplier's name, address and VAT number, the date, a description of the goods, and the total including VAT with the rate charged.

Question 44Principles of VAT (registration, VAT categories, invoicing and record keeping)

A landlord opts to tax a commercial property letting that would otherwise be exempt. What is the effect?

  1. The landlord can no longer reclaim any input tax on the property
  2. The letting remains exempt but the landlord pays a fixed annual tax to HMRC
  3. The letting becomes zero-rated and no VAT is charged
  4. Standard-rate VAT must be charged and related input tax is recoverable Correct answer.

Explanation

By exercising the option to tax, the landlord converts an exempt supply of property into a taxable one. VAT at the standard rate must then be charged on the rent and the landlord can recover input tax on costs relating to the property.

Question 45Principles of VAT (registration, VAT categories, invoicing and record keeping)

Two companies form a VAT group. How are supplies between the group members treated?

  1. They are disregarded for VAT purposes and one group return is submitted Correct answer.
  2. They are standard-rated, with VAT charged by the seller and payable to HMRC
  3. They are zero-rated, so the supplier can recover the related input tax
  4. They are treated as exempt, so neither company can recover any input tax on them

Explanation

Members of a VAT group are treated as a single taxable person, so supplies made between them are disregarded and do not create a VAT liability. One group return is submitted covering the combined activities of all members.

Question 46Principles of VAT (registration, VAT categories, invoicing and record keeping)

A business sells its entire trade as a going concern to another VAT-registered business that will continue trading. What is the VAT treatment of the sale?

  1. The sale is outside the scope of VAT and no VAT is charged Correct answer.
  2. The sale is zero-rated and the seller must still account for output tax
  3. The sale is exempt and the buyer cannot recover any input tax
  4. VAT at 20% must be charged on the sale of the assets

Explanation

Where a business is transferred as a going concern to a VAT-registered buyer who continues to trade, the transfer is not treated as a supply for VAT purposes. No VAT is charged on the transfer, and the buyer takes on the VAT responsibilities of the business.

Question 47Principles of VAT (registration, VAT categories, invoicing and record keeping)

Which of the following is outside the scope of UK VAT?

  1. A private individual selling their own used car Correct answer.
  2. A restaurant meal eaten on the premises
  3. A bookshop's sale of zero-rated books
  4. A broker's arrangement of an insurance policy

Explanation

A sale by a private individual of their own possessions is not a supply made by a taxable person in the course or furtherance of a business, so it falls outside the scope of VAT. Supplies that are zero-rated or exempt are within scope, simply taxed at 0% or exempted.

Question 48Principles of VAT (registration, VAT categories, invoicing and record keeping)

A UK VAT-registered business imports goods from outside the UK for use in its trade. How can it use postponed VAT accounting for the import VAT?

  1. It declares the VAT on its VAT return and recovers it as input tax Correct answer.
  2. Import VAT does not apply to goods imported by VAT-registered businesses
  3. It must pay the import VAT at the border and then reclaim it on a later return
  4. It pays import VAT at the reduced rate of 5% at the border

Explanation

Postponed VAT accounting allows a registered importer to declare import VAT on its VAT return instead of paying it at the border. The same amount is normally claimed as input tax on the same return, so the entries offset and the cash-flow burden is removed.

Question 49Principles of VAT (registration, VAT categories, invoicing and record keeping)

Under the standard de minimis test, exempt input tax can normally be treated as recoverable if it is no more than:

  1. £2,500 per quarter and no more than two thirds of the total input tax
  2. £7,500 per year and no more than a tenth of total input tax
  3. £1,000 per month and no more than a quarter of total input tax
  4. £625 per month on average and no more than half of total input tax Correct answer.

Explanation

Exempt input tax is treated as de minimis where it averages no more than £625 per month (£1,875 per quarter or £7,500 per year). It must also be no more than 50% of the business's total input tax for the period.

Question 50Principles of VAT (registration, VAT categories, invoicing and record keeping)

A VAT-registered trader keeps its business records, including copies of VAT invoices and its VAT account, in both paper and electronic form. For how long must these records normally be preserved?

  1. Ten years from the date the business registered for VAT
  2. Four years from the end of the VAT period concerned
  3. Three years from the date of each transaction
  4. Six years from the end of the VAT period concerned Correct answer.

Explanation

A taxable person must normally keep VAT records for six years from the end of the VAT period to which they relate, so that HMRC can check returns and accounts. The records include invoices issued and received, the VAT account, credit notes and business books. Shorter or longer retention can apply only in specific circumstances, such as records relating to land or to goods held under certain schemes.