AAT L3 Indirect Tax (UK VAT) 2

Question 1

The cash accounting scheme for VAT means that:

Accepted Answer

Output VAT is accounted for when payment is received and input VAT is reclaimed when payment is made

Answer

Under the cash accounting scheme, businesses account for VAT on the basis of cash flow — output VAT is paid when customers pay, and input VAT is reclaimed when suppliers are paid, providing automatic bad debt relief.

Question 2

Which of the following would be classified as a zero-rated supply for UK VAT?

Accepted Answer

Printed books and newspapers

Answer

Printed books and newspapers are zero-rated for UK VAT. Adult clothing is standard-rated; takeaway hot food is generally standard-rated; domestic electricity is reduced rate (5%).

Question 3

Output VAT is the VAT that a business:

Accepted Answer

Charges on its taxable sales and owes to HMRC

Answer

Output VAT is charged by a VAT-registered business on its taxable sales; it is collected from customers on behalf of HMRC and must be accounted for on the VAT return.

Question 4

The annual accounting scheme for VAT allows a business to:

Accepted Answer

Submit one VAT return per year with advance payments during the year

Answer

The annual accounting scheme lets eligible businesses file one VAT return per year; they make interim advance payments (typically nine monthly payments at 10% of the previous year's liability) and a balancing payment.

Question 5

A business makes both taxable and exempt supplies and is partially exempt. What is the impact on input VAT recovery?

Accepted Answer

Only input VAT attributable to taxable supplies (plus a proportion of residual input tax) can be reclaimed

Answer

Under partial exemption rules, input VAT directly attributable to taxable supplies is recoverable; input VAT on exempt supplies is not; residual (mixed) input VAT is apportioned between taxable and exempt supplies.

AAT Level 3 Practice Test

AAT Level 3 Practice Test

AAT L3 Indirect Tax (UK VAT) 2