ICAEW AF · Chapter 4 · Question 2 of 8
A VAT-registered business receives an invoice for £5,436, including VAT at 20%. How much of this amount is VAT?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) £906
Explanation
When VAT is 20%, the gross amount is 120% of the net amount, so VAT = gross x 20/120 = gross x 1/6. VAT = £5,436 / 6 = £906 and the net amount is £4,530. Taking 20% of the gross figure (£1,087.20) is a common error because it applies the rate to an amount that already includes VAT.
More Sales tax (VAT) MCQs
- Q4A VAT-registered business buys a machine for £18,000 plus VAT of £3,600. It also pays delivery of £500 plus VAT of £100. All the VAT is…
- Q5A business that is NOT registered for VAT buys inventory for £1,200 plus VAT of £240. At what amount should the purchase be recorded?
- Q6The sales day book for the month shows total net sales of £37,100, VAT of £7,420 and gross total of £44,520. What entry is made in the VAT…
- Q7A VAT-registered business returns faulty goods to a credit supplier. The supplier's credit note is for £960, including VAT at 20%. What is…
- Q8In a VAT quarter, a business made sales of £126,000 excluding VAT. Of these, £18,000 were zero-rated and the remainder were standard-rated…