VAT Quiz Questions And Answers

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VAT Quiz Questions And Answers - Quiz

Check out this VAT quiz questions and answers and test your knowledge regarding the taxes. VAT stands for Value-added tax that is levied on services and goods and is assessed incrementally. It is very much important for the overall growth of GDP. The quiz consists of basic questions related to VAT. If you think you can easily secure 100% marks on the quiz below, why don't you give it a try? Best of luck, buddy!


Questions and Answers
  • 1. 

    What does Anchor input tax relate to?

    • A.

      Purchases

    • B.

      Sales

    • C.

      Profit

    • D.

      None of the above

    Correct Answer
    A. Purchases
    Explanation
    Inputs are the things you PUT IN to your business – i.e. your purchases

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  • 2. 

    How long are the VAT periods Anchor and its subsidiaries submit returns for (select all that apply)?

    • A.

      Four weeks

    • B.

      One month

    • C.

      Three months

    • D.

      One year

    Correct Answer(s)
    B. One month
    C. Three months
    Explanation
    Returns must be submitted monthly or quarterly – most businesses submit quarterly.

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  • 3. 

    What is Anchor’s typical partial recovery rate on VAT?

    • A.

      0-5%

    • B.

      5-10%

    • C.

      20-25%

    • D.

      50%

    Correct Answer
    B. 5-10%
    Explanation
    The percentage usually depends on property sales. In the last VAT year to 31 May 2021 the average was 9.68%.

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  • 4. 

    What is the VAT treatment of insurance and why?

    • A.

      Exempt - a different indirect tax is payable on insurance

    • B.

      Exempt - charities don't pay VAT on insurance

    • C.

      Outside scope - a different indirect tax is payable on insurance

    • D.

      Outside scope - insurance is compulsory, so not taxable

    • E.

      Standard - it's a normal service, so taxable

    Correct Answer
    A. Exempt - a different indirect tax is payable on insurance
    Explanation
    Insurance Premium Tax is paid on most insurance, at 12% or 20% depending on the insurance. Some specialist types of insurance are also exempt from IPT such as commercial ships and aircraft and long-term insurance.

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  • 5. 

    What is the most common rate of VAT on Anchor’s sales?

    • A.

      Exempt

    • B.

      Outside scope

    • C.

      Standard

    • D.

      Zero

    Correct Answer
    A. Exempt
    Explanation
    Rent and care fees are exempt from VAT, totalling 95.8% of sales.

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  • 6. 

    What is the most common rate of VAT on Anchor’s purchases?

    • A.

      Exempt

    • B.

      Outside scope

    • C.

      Standard

    • D.

      Zero

    Correct Answer
    C. Standard
    Explanation
    85% of purchases are standard rated

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  • 7. 

    Can Anchor’s housing customers recover the VAT they pay on invoices with standard rated VAT?

    • A.

      Yes

    • B.

      No

    Correct Answer
    B. No
    Explanation
    Customers are the end consumer and can’t recover VAT they pay.
    Customers in the Agresso sense such as a commercial business renting space could recover VAT if they make taxable supplies from the inputs Anchor charge them for.

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  • 8. 

    What is the VAT rate on Jaffa Cakes?

    • A.

      Exempt

    • B.

      Outside scope

    • C.

      Standard

    • D.

      Zero

    Correct Answer
    D. Zero
    Explanation
    Although chocolate covered, McVities convinced the court Jaffa Cakes are a cake because they go hard over time like a cake, not soft like a biscuit. HMRC tried to argue they were a finger snack, like a biscuit, unlike a cake slice, which can be eaten with a fork.

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  • 9. 

    Why doesn’t Anchor pay VAT on invoices for bulk mobile phones?

    • A.

      Bulk purchases of mobile phones are zero rated for charities

    • B.

      Bulk purchases of mobile phones are exempt from VAT

    • C.

      Bulk purchases of mobile phones are subject to the domestic reverse charge – VAT is paid direct to HMRC

    • D.

      The tax team reduce our costs by missing things off the VAT return

    Correct Answer
    C. Bulk purchases of mobile phones are subject to the domestic reverse charge – VAT is paid direct to HMRC
    Explanation
    Anchor accounts for the VAT direct to HMRC rather than paying its supplier, to reduce the risk of VAT fraud by unscrupulous suppliers. A woman was recently arrested in Spain for being the financial mastermind behind a £1bn VAT fraud using non-existent mobile phones.

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  • 10. 

    If a regular supplier stops charging VAT for VATable goods and services, what does Anchor need to do?

    • A.

      Nothing, it is the supplier’s responsibility to account for their own VAT

    • B.

      Report them to HMRC

    • C.

      Check with the supplier – there might be a valid reason

    • D.

      Keep adding VAT to what we pay them

    Correct Answer
    C. Check with the supplier – there might be a valid reason
    Explanation
    It is possible to de-register for VAT if a company falls below £83,000 in taxable turnover, so our first step would be communication with the supplier.
    Anchor has responsibilities under tax avoidance legislation to report potential VAT fraud to HMRC, which would include reporting suppliers to HMRC if Anchor pays them more than the £85,000 registration threshold.

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  • 11. 

    What VAT rates might be payable on a deposit (select all that apply)?

    • A.

      Exempt

    • B.

      Outside scope

    • C.

      Standard

    • D.

      Zero

    Correct Answer(s)
    A. Exempt
    B. Outside scope
    C. Standard
    D. Zero
    Explanation
    A deposit is outside the scope if it is refundable. Where it reduces the end price payable, it simply follows the VAT treatment of the supply, so could have any VAT rate.

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  • 12. 

    What options are available to HMRC if Anchor make mistakes on their VAT return (select all that apply)?

    • A.

      A slap on the wrist (suspended penalty)

    • B.

      Penalty fines

    • C.

      Interest on unpaid amounts

    • D.

      Imprison Sarah Jones

    Correct Answer(s)
    A. A slap on the wrist (suspended penalty)
    B. Penalty fines
    C. Interest on unpaid amounts
    D. Imprison Sarah Jones
    Explanation
    All are possible – a suspended penalty (slap on the wrist) is the most common outcome as Anchor always self-reports errors it discovers, and doesn’t engage in dodgy tax avoidance schemes (see the tax strategy for more). Under the Corporate Criminal Offence legislation introduced in 2016, the senior officers of a company can face criminal prosecution resulting in a prison sentence if the company facilitates tax evasion.

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  • Current Version
  • Mar 30, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Mar 14, 2022
    Quiz Created by
    Themes
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