8: VAT and Stamp Taxes

Question 1

Explain single (composite) supplies

Answer 1

Single supplies are treated as one supply with a single rate of VAT.

Usually where the components can not be sold separately and would normally only make sense as part of a package.

Question 2

Explain multiple supplies

Answer 2

Treated as more than one supply with an appropriate VAT rate for each element.

Usually where there is separate pricing and easily separable.

Question 3

Explain partial exempt traders

Answer 3

A partially exempt trader is one making both taxable (inc zero rated) and exempt supplies.

They will always be able to recover input VAT on their taxable supplies and MAY be able to reclaim VAT relating to exempt supplies if ONE of the partial exemption tests is met.

Question 4

What are the partial exemption tests (in TT search test in VAT)

Answer 4

Test one

a. Total input VAT <£625pm avg AND
b. Exempt supplies <50% of total supplies for period

Test two, only do if test one fails

a. Total input VAT less input tax directly attributable to taxable supplies <625pm avg AND
b. Exempt supplies <50% of total supplies for period

Question 5

Standard partial exemption test and when to do it

Answer 5

If a trader fails the 2 simplified tests.

Split out directly attributable and not directly attributable into taxable and exempt supplies columns.

supplies of taxable items/total supplies = X% (round up).

Taxable are then fully recoverable and exempt are irrecoverable unless they then can pass the Simplified test one.

Question 6

VAT treatment of land and buildings (not in TT)

Answer 6

1. Sale/construction of new residential building - 0% - builder can recover input VAT
2. Sale/construction of new commercial building - 20% - purchaser can recover input VAT if the building will be used for taxable supplies
3. Any other sale of lease - exempt - commercial properties have option to tax

Question 7

3 features of option to tax

Answer 7

1. Permanent election (6m cooling off period . revocable after 20 years)
2. Charge standard rate VAT on all future supplies of commercial property
3. Per building basis

Question 8

Explain capital goods scheme

Answer 8

Applies to: single PC, L&B, boats (specifics in TT)

Initial year of purchase recovered in normal way.

Annual adjustment per VAT year. 10 years for L&B, 5 years for computer hardware and boats.

No adjustment needed where there have been no changes in use since acquisisiton

Formula for annual adjustment:

(Total input VAT/10 or 5 intervals) x (taxable % usage now - original taxable % usage)

In year of sale, in addition to the annual adjustment above, there is a sale adjustment for all remaining years in the adjustment period: (100% if VAT, 0 if no VAT)

(Total input VAT/10 or 5 intervals) x (100% or 0% - original taxable % usage) x intervals remaining

NOTE remember to use percentages as fractions i.e.1/100th

Question 9

What is the flat rate scheme

Answer 9

Allows VAT registered trader to apply a flat rate % to their VAT-inclusive turnover rather than calculating output VAT and input VAT deduction separately.

Open if trader <£150,000 in annual taxable supplies.

The business must leave if total annual income (inc VAT and exempt supplies ) exceeds £230,000.

There are two more criteria, both in TT and how to apply

Question 10

Explain SDLT groups

Answer 10

If there is >75% ownership the companies can constitute a group and no SDLT will be due on the transfer.