Value added tax: formula sheet

Key formulas

Registration limit

Taxable turnover in the last 12 months > £90,000

Historic test. Applied at the end of every month. The tax tables give £90,000.

Historic test deadline

Notify HMRC within 30 days of the end of the month in which the limit is exceeded. Registered from the first day of the second month after that month, or an earlier agreed date.

Example: limit exceeded in March, notify by 30 April, registered from 1 May.

Future test

Expected taxable turnover in the next 30 days alone > £90,000

Notify HMRC by the end of the 30-day period in which the expectation arises. Registration takes effect from the start of that 30-day period.

Deregistration limit

Expected taxable turnover in the next 12 months ≤ £88,000

Voluntary deregistration is available only where taxable turnover is expected to stay at or below £88,000 in the next 12 months. A temporary fall in turnover is not a basis for deregistration. If the business ceases to make taxable supplies, it must notify HMRC within 30 days and deregister.

Late VAT payment penalties

Up to 15 days late: none. 16 to 30 days: 3%. More than 30 days: 6% plus daily penalty at an annual rate of 10%

From the tax tables.

Late registration

VAT is due from the date registration should have taken effect, whether or not it was charged to customers

A penalty for late notification also applies. State this without a rate unless the question gives one.

Standard rate

VAT = net price × 20%

The standard rate is in the ATX-UK tax tables. VAT-inclusive price × 20/120 gives the VAT within it.

Standard method recovery percentage

Taxable supplies ÷ total supplies (taxable + exempt) × 100, rounded up to the next whole percentage

Applies to residual input tax only. Use values excluding VAT. Do not include outside-the-scope supplies in the percentage.

Total exempt input tax

Exempt input tax = input tax directly attributable to exempt supplies + (residual input tax × exempt percentage)

This is the figure tested against the de minimis limits.

De minimis test (all must be met for full recovery)

Total input tax − input tax for taxable supplies ≤ £625 per month on average (£7,500 a year), and ≤ 50% of total input tax

Know the two limits. The ATX-UK tax tables do not give the £625 figure, so learn it. The test uses the total exempt input tax for the whole period. Divide by the number of months to get the monthly average, or compare it with £7,500 for a full year.

Capital goods scheme adjustment period

Land and buildings: 10 years; computers, ships, aircraft and other boats: 5 years. Annual adjustment = input tax ÷ adjustment period × change in taxable use percentage

Land and buildings bought for £250,000 or more (excluding VAT) are within the scheme. So are computers, ships, aircraft and other boats costing £50,000 or more (excluding VAT) per item. For land held under a lease, the adjustment period is the shorter of 10 years and the remaining lease term, with a minimum of 5 years for short leases.

Standard VAT rate

VAT = 20% × VAT-exclusive value

VAT-inclusive amount ÷ 1.2 gives the net amount, and × 20/120 gives the VAT. This rate is in the ACCA tables.

Cash accounting eligibility

Expected taxable turnover ≤ £1,350,000 to join; must leave if turnover exceeds £1,600,000

Output VAT is due when payment is received and input VAT is reclaimed when payment is made. Learn the limits as they are not in the tables extract.

Annual accounting eligibility and payments

Expected taxable turnover ≤ £1,350,000 to join; must leave if turnover exceeds £1,600,000. Nine monthly payments of 10% of last year's liability from month 4, or three quarterly payments of 25% from month 4

Balancing payment and return are due within two months of the year end. The balance is actual liability less advance payments.

Flat rate scheme eligibility

Expected taxable turnover (excluding VAT) ≤ £150,000 to join; must leave if VAT-inclusive turnover exceeds £230,000

A business can join if its expected turnover for the next 12 months is within the limit. Learn these limits.

Flat rate scheme VAT payable

VAT payable = flat rate % × VAT-inclusive turnover

Turnover includes standard-rated, zero-rated and exempt sales. Input VAT is not reclaimed, except on a single capital asset costing £2,000 or more including VAT. A 1% reduction in the rate applies in the first year after VAT registration.

Limited cost trader test

Spending on goods < 2% of VAT-inclusive turnover (or < £1,000 a year if that is greater) → rate 16.5%

Goods exclude capital assets, food and drink for the owner and staff, and vehicle fuel (except where the business is transport). Services are not goods.

Late VAT payment penalties

Up to 15 days: none. 16 to 30 days: 3%. Over 30 days: 6% plus a daily penalty at an annual rate of 10%

From the ACCA tables. Relevant when advising on monthly annual accounting payments.

Land supplies: default treatment

Sale or lease of land and buildings = exempt, unless the option to tax has been made or the supply is specifically taxed

Exceptions: freehold sale of a new commercial building (within 3 years of completion) is standard-rated; first sale of a new residential building is zero-rated. Exempt means no output VAT, and related input VAT is generally not recoverable (subject to partial exemption rules).

Effect of the option to tax

Opted property: supplies standard-rated at 20%

Covers all of the land and buildings within the opted parcel. Notify HMRC. Can be revoked only in limited cases, for example within a 6-month cooling-off period or after 20 years. Not available on residential property.

TOGC: core conditions

Business (or separable part) transferred as going concern + same kind of business carried on by buyer + buyer is, or becomes, VAT-registered by the transfer + no break in trading

If all conditions are met, the transfer is outside the scope of VAT. Check each one in the scenario.

TOGC and opted property

If the seller has opted the property, the buyer's option must be in place and notified to HMRC by the relevant date (the date of transfer or, if earlier, the tax point), and the buyer must give the seller written notification of the option

If this is done, the property element is within the TOGC. If not, the property element is not treated as part of the TOGC, and the normal land rules apply to it. State this rule in plain words in the exam.

VAT rate and registration

Standard rate 20%; registration limit £90,000; deregistration limit £88,000

Given in the tax tables. Needed to test whether a buyer is, or must become, registered.

Late VAT payment penalty

Up to 15 days: nil; 16 to 30 days: 3%; over 30 days: 6% plus daily penalty at 10% a year

From the ACCA tax tables. Apply to the VAT outstanding at the relevant point. For 16 to 30 days, use the VAT still unpaid at day 15.

Interest on underpaid VAT

Tax × 8.50% × days late ÷ 365

Assumed rate in the tables. Runs from the due date to the date of payment.

Interest on overpaid VAT

Tax × 3.50% × days ÷ 365

Assumed rate in the tables. Use it when HMRC owes the taxpayer a repayment.

Error correction threshold

Greater of £10,000 or 1% of box 6 turnover (maximum £50,000)

Net errors at or below this can go on the next return. Above it, disclose separately to HMRC.

Standard penalties for errors

Careless: 0%–30%; deliberate not concealed: 20%–70%; deliberate and concealed: 30%–100%

Maximum is 30%, 70% or 100%. The minimum depends on whether disclosure is unprompted or prompted: careless 0% or 15%, deliberate not concealed 20% or 35%, deliberate and concealed 30% or 50%.

VAT on a VAT-inclusive amount

VAT = gross amount × 1/6 (standard rate 20%)

Use this when a debt or price includes VAT.

Bad debt relief timing

Debt unpaid six months from the later of supply date and due date for payment

Also written off in the accounts, and VAT already accounted for. Claim within four years and six months of that later date.

Quick revision

• Standard rate is 20%; registration limit is £90,000 and deregistration limit is £88,000, both given in the tax tables.
• Calculations and workings need only be to the nearest £, and all workings should be shown.
• Partial exemption depends on how much input tax relates to exempt supplies; know the de minimis test and apply it carefully.
• Check scheme conditions before recommending a scheme, and state the advantage and disadvantage.
• For land and property, check whether the option to tax applies before deciding how a supply is treated.
• For a transfer of a going concern, test every condition before saying VAT is outside scope.
• Late VAT payment: no penalty up to 15 days late, 3% for 16 to 30 days, and 6% plus a daily penalty at an annual rate of 10% beyond 30 days.
• Interest on underpaid tax is 8.50% and on overpaid tax 3.50% in the tables.
• Standard error penalties for careless behaviour have a maximum of 30%; the tables give the minimums for prompted and unprompted disclosure.
• Always finish with a conclusion or recommendation the client can act on.

Common mistakes

• Including exempt supplies in taxable turnover. Fix: Tag each supply as standard, reduced, zero or exempt first. Only the first three count.
• Treating registration as starting on the day of notification. Fix: For the historic test, effective date is the first day of the second month after the month the limit is exceeded. Notification is by the 30th day after that month end.
• Treating zero-rated and exempt supplies as the same. Fix: Remember the input tax. Zero-rated supplies allow full recovery. Exempt supplies block recovery. Say this in your answer.
• Rounding the recovery percentage down or to the nearest whole number. Fix: Under the standard method, always round up to the next whole percentage.
• Applying the flat rate percentage to VAT-exclusive turnover. Fix: Always gross up sales to include VAT first. Flat rate VAT is a percentage of VAT-inclusive turnover.
• Forgetting the limited cost trader test. Fix: Compare spending on goods with 2% of VAT-inclusive turnover. If it is below, use 16.5% and say why.
• Treating all property sales as standard-rated. Fix: Start with exempt as the default. Only move to standard-rated if the option to tax has been made, or for supplies that are specifically standard-rated.
• Ignoring the customer when advising on the option to tax. Fix: Always ask whether the tenant or buyer can recover VAT. If not, opting may make the property harder to let or sell.
• Applying default surcharge percentages to late VAT payments. Fix: Use the late payment penalty table in the ACCA tax tables: nil, 3%, or 6% plus a daily penalty.
• Forgetting interest when a penalty is due, or the reverse. Fix: They are separate. Calculate each on its own line, using 8.50% for underpaid tax.

Exam tips

• Draw a small table of monthly sales and a rolling total. It earns method marks and prevents slips.
• Always state both limits, £90,000 and £88,000, and say which test applies.
• For voluntary registration, link the advice to the customer type: business customers favour registration, private customers do not.
• For group registration, give both advantages and disadvantages, then conclude for the client.
• If a question mentions late VAT payment, use the tax table penalty bands: none up to 15 days, 3% for 16 to 30 days, 6% plus daily penalty beyond 30 days.
• Show the three-way split of input tax in a small table. Marks go for classification even if arithmetic slips.
• Always state the reason: exempt supplies block recovery, zero-rated supplies do not. Use that wording in advice requirements.
• In land scenarios, look for the option to tax, new buildings and capital goods scheme thresholds. These are the usual hooks.