ACCA Applied Skills · Taxation (UK)

The computation of VAT liabilities: formula sheet

Full chapter guide

Key formulas

VAT payable or repayable: Output tax − Input tax; A positive answer is payable to HMRC. A negative answer is repayable by HMRC.
VAT on a VAT-exclusive amount: VAT = Net amount × 20%; Gross = Net × 1.20. Standard rate is 20%.
VAT on a VAT-inclusive amount: VAT = Gross amount × 20/120 (or ÷ 6); Net = Gross ÷ 1.20. Do not take 20% of a gross figure.
Standard rate: 20%; Given in the tax rates and allowances provided in the exam.
Standard rate: Standard rate = 20%; Given in the ACCA tax tables. Applies unless the supply is zero-rated, reduced-rated or exempt.
VAT on a VAT-exclusive price: Output VAT = net price × 20%; Use 20% on the net amount. Gross price = net × 1.20.
VAT in a VAT-inclusive price: VAT = gross × 20/120 (or 1/6); Use this when a standard-rated price already includes VAT.
Zero-rated supply: Output VAT = 0; input tax recoverable; Counts as a taxable supply. Counts towards the registration threshold of £90,000.
Exempt supply: Output VAT = none; input tax generally not recoverable; Not a taxable supply. Does not count towards the registration threshold.
Net VAT payable: Output tax − recoverable input tax; A negative answer means a repayment from HMRC.
VAT on a VAT-exclusive price: VAT = net price × 20%; The standard rate is 20%. Gross price = net × 1.20.
VAT on a VAT-inclusive price: VAT = gross price × 1/6; Valid at 20% only. Net price = gross × 5/6, or gross ÷ 1.20.
Prompt payment discount: VAT = (price after discount) × 20%; Use the discounted price whether or not the customer takes the discount.
Registration and deregistration limits: Registration £90,000; deregistration £88,000; These are given in the tax rates and allowances provided in the exam.
VAT payable: VAT payable = Output tax − Recoverable input tax; If the result is negative, HMRC owes the business a repayment.
VAT standard rate: VAT = VAT-exclusive price × 20%; VAT-inclusive price × 20/120 = VAT; The standard rate in the ACCA tax tables is 20%. Use 20/120 (1/6) to extract VAT from a gross figure.
Business entertainment: Input VAT on client entertainment: not recoverable; Staff-only entertainment is normally recoverable.
Motor cars with private use: Input VAT on car purchase: not recoverable if any private use; Recoverable in full only if wholly business use, such as a taxi or a car held for resale.
Leased cars with private use: Recoverable VAT = 50% × VAT on the lease payment; Applies where the car has private use. If it is used wholly for business, all the VAT is recoverable.
Non-business items: Input VAT on private items: not recoverable; For mixed use, reclaim only the business proportion.
Irrecoverable VAT: Cost for tax = Net cost + Irrecoverable VAT; Irrecoverable VAT is included in the cost of the item.
Basic tax point (goods): Date goods are removed or made available to the customer; Applies if no earlier invoice or payment and no later 14-day invoice.
Basic tax point (services): Date services are completed; Completion, not the date work starts or the date of the contract.
Actual tax point (early): Earlier of invoice date and payment date, if before the basic tax point; Applies only to the amount invoiced or paid.
Actual tax point (14-day rule): Invoice date, if invoice issued within 14 days after the basic tax point; Applies only if the invoice is the first event and no earlier invoice or payment has fixed the tax point.
Deposits: Deposit received before basic tax point = actual tax point for that amount; A refundable deposit held purely as security is not a payment for the supply.
Valid VAT invoice contents: Supplier name and address; supplier VAT number; invoice date; tax point if different; unique sequential number; customer name and address; description of goods or services; quantity, unit price and rate of VAT for each item; total excluding VAT; total VAT payable; Also show any cash discount offered and the rate of VAT applicable. Learn it as a list.
Standard VAT rate: 20%; Given in the ACCA tax rates and allowances.
VAT in a VAT-inclusive amount: VAT = gross amount × 20/120 (standard rate 20%); Use this when the unpaid debt is stated including VAT. The standard rate of 20% is given in the tax rates and allowances.
Bad debt relief conditions: VAT paid to HMRC + debt written off + at least 6 months after the later of supply date and due date + claim within 4 years 6 months of that date; All conditions must be met. Claim on a VAT return as input tax.
Part-paid debt: Relief = unpaid gross amount × 20/120; Only the unpaid part of the debt qualifies. Do not use the full invoice VAT.
Pre-registration input tax: goods: Goods bought within 4 years before registration and still held at registration; Goods already sold or used up before registration do not qualify.
Pre-registration input tax: services: Services bought within 6 months before registration; Both goods and services must relate to the business and be supported by valid VAT invoices.
Partial exemption de minimis test: Total input tax ≤ £625 per month on average AND exempt input tax ≤ 50% of total input tax; If both tests are met, all input tax is recoverable. If either fails, only the taxable part is recovered.

Quick revision

VAT payable = output tax − recoverable input tax. A negative result is a repayment.
The standard rate in TX-UK is 20%.
The registration limit is £90,000 and the deregistration limit is £88,000.
VAT on a VAT-inclusive amount at 20% = gross × 20 ÷ 120, which is gross × 1/6.
Classify each supply first: standard, reduced, zero-rated or exempt.
Zero-rated supplies are taxable at 0%, so related input tax is normally recoverable. Exempt supplies carry no output tax and related input tax is generally not recoverable.
Prompt payment discounts: VAT is charged on the discounted price, whether or not the customer takes up the discount.
Tax point: the basic tax point is the date of supply (delivery). An invoice or payment made before that date moves the tax point earlier. If an invoice is issued within 14 days after the basic tax point, the invoice date becomes the tax point.
Late VAT payment penalties: none up to 15 days, 3% for 16 to 30 days, and 6% plus a daily penalty at an annual rate of 10% beyond 30 days.
Bad debt relief lets you reclaim output tax already paid on a debt that stays unpaid, once the conditions are met.
Always show workings: state each supply, its value and its VAT separately.

Common mistakes

Taking 20% of a VAT-inclusive amount. Fix: Check the wording. If the price includes VAT, multiply by 20/120 or divide by 6.
Charging output tax on exempt supplies. Fix: Zero-rated is taxable at 0%. Exempt is outside taxable supplies. Neither gives output tax.
Saying zero-rated and exempt supplies are the same because the customer pays no VAT. Fix: Focus on the supplier. Zero-rated is taxable, so input tax is recoverable. Exempt is not taxable, so input tax is generally not recoverable.
Recovering input tax on costs of making exempt supplies. Fix: Match each cost to the supply it serves. If it serves an exempt supply, treat the VAT as part of the cost.
Calculating VAT on a VAT-inclusive price as 20% of the gross figure. Fix: If the price includes VAT, use gross × 1/6. Check by confirming that net + VAT equals gross.
Using 1/5 instead of 1/6 on a gross figure. Fix: Write 'gross' or 'net' beside each number before choosing the fraction.
Reclaiming VAT on client entertainment. Fix: Remember that the block depends on who is being entertained. Clients are blocked, staff are normally not.
Reclaiming VAT on a car because it is mainly used for business. Fix: The car rule needs wholly business use. Any private use, including commuting, blocks the VAT on purchase.
Using the payment date as the tax point when payment is after delivery. Fix: Outside the cash accounting scheme, late payment does not move the tax point. Use the basic tax point or the invoice date.
Ignoring the 14-day rule. Fix: Always check whether an invoice is dated within 14 days after the basic tax point and nothing earlier has occurred.

Exam tips

Read each figure for 'including VAT' or 'excluding VAT' before calculating. This single check protects most marks.
Objective test questions are marked all or nothing, so write out output and input tax separately and check the subtraction.
In constructed response answers, show output tax and input tax workings clearly. Label the final figure as payable or repayable.
Look for items that look like input tax but are not recoverable, such as non-business use.
In objective tests, the classification is often the whole question. Learn the common zero-rated and exempt examples until you can sort them instantly.
Always state the effect on input tax. Markers reward the link between category and recovery.
Check whether a price is VAT-inclusive before you calculate. Underline the word in the question.
In Section C, set out output tax and input tax in separate lines, and label each as recoverable or irrecoverable.