AAT L3 Indirect Tax (UK VAT) 1 — Questions and Answers
Question 1: Which of the following supplies is EXEMPT from UK VAT?
- Standard-rated goods sold to consumers
- Zero-rated food items
- Insurance services (Correct answer)
- Children's clothing
Correct answer: Insurance services
Insurance services are exempt from VAT in the UK. Exempt means no VAT is charged, but the supplier also cannot reclaim input VAT on costs relating to exempt supplies.
Question 2: A VAT-registered business can reclaim input VAT on:
- Business entertainment of UK customers
- Private use of a company car
- Goods and services used exclusively for taxable business supplies (Correct answer)
- Exempt supplies made by the business
Correct answer: Goods and services used exclusively for taxable business supplies
Input VAT is recoverable only on goods and services purchased and used for taxable business purposes. VAT on customer entertainment and private use is blocked; input VAT relating to exempt supplies is not recoverable.
Question 3: The VAT flat rate scheme allows a business to:
- Charge a lower rate of VAT to customers
- Pay a fixed percentage of gross turnover to HMRC instead of calculating input and output VAT separately (Correct answer)
- Avoid registering for VAT
- Submit annual rather than quarterly VAT returns
Correct answer: Pay a fixed percentage of gross turnover to HMRC instead of calculating input and output VAT separately
The flat rate scheme simplifies VAT accounting for small businesses — they pay a fixed percentage of their gross (VAT-inclusive) turnover to HMRC and keep the difference, rather than tracking individual input and output VAT.
Question 4: What is the time limit for a VAT-registered business to reclaim input VAT on a purchase invoice?
- 3 months from the invoice date
- 12 months from the invoice date
- 4 years from the invoice date (Correct answer)
- 6 years from the invoice date
Correct answer: 4 years from the invoice date
HMRC allows input VAT to be reclaimed up to four years after the date of the supply (or the invoice date). Claims outside this period are out of time.
Question 5: A VAT return must normally be submitted to HMRC within how many days of the end of the VAT period?
- 7 days
- 14 days
- 30 days
- 1 calendar month and 7 days (Correct answer)
Correct answer: 1 calendar month and 7 days
Businesses using Making Tax Digital for VAT must submit their VAT return and payment within 1 calendar month and 7 days after the end of each VAT accounting period.
Question 6: Zero-rated supplies differ from exempt supplies because:
- They are not subject to any VAT rules
- VAT is charged at 0% but the supplier can reclaim input VAT on related costs (Correct answer)
- They carry a VAT charge of 5%
- The supplier cannot reclaim any input VAT
Correct answer: VAT is charged at 0% but the supplier can reclaim input VAT on related costs
Zero-rated supplies are taxable at 0%; this means no VAT is collected from customers, but crucially the supplier can recover input VAT on costs attributable to those zero-rated supplies.
AAT L3 Indirect Tax (UK VAT) 1
Which of the following supplies is EXEMPT from UK VAT?