Chapter 6 - Deemed Supply

Question 1

Introduction

Answer 1

Deemed supplies are in existence as an anti-avoidance measure.
Requires a trader to account for output tax even though there is no supply for consideration to a third party.
The deemed supply leg applies where a taxable business buys something, recovers the input tax and then puts those items into private use

Question 2

Deemed Supplies

Answer 2

When goods are given away or where the goods are used for private purposes.
Where a business is registered for VAT but is now going to deregister, any goods held by the business on deregistration are treated as deemed supplies if those goods had input tax recovered on their purchase

Question 3

How to Account for Deemed Supplies

Answer 3

A business that makes a deemed supply will have to account for output tax on the supply, so there will be output tax to put on the VAT return. This output tax will be paid to HMRC when the VAT return is submitted.
Rules apply to all businesses whether taxable or exempt

Question 4

Gift of Goods (Deemed Supply)

Answer 4

Input tax is clawed back on goods that are given away by making an output tax charge on the replacement cost of such goods.
The gift is exempt from this if made in the furtherance of the business and cost less than £50 excluding VAT, and it’s exempt if the gift is a sample of goods

Question 5

Private Use of Business Assets (Deemed Supply)

Answer 5

Where goods are acquired with the expectation of some private or non business use, the trader will apportion the initial input tax recovery

Question 6

Motor Fuel Provided for Private Use

Answer 6

Four choices:

1) claim all input tax incurred and use the fuel scale charge from HRMC to calculate the output tax to be claimed on the VAT return.
2) claim no input tax
3) keep detailed mileage records and only pay input on business miles
4) recover all input VAT and charge the employee for the cost of private fuel

Question 7

Goods Held on Deregistration (Deemed Supply)

Answer 7

Assets contained in the business at dereg, when eventually sold, will not have VAT charged on the sale. Input tax would’ve been reclaimed when they were bought to a loss to HMRC will arise.
There is a deemed supply at the date of dereg on all assts held at the date of dereg. Output tax is then charged on the replacement cost of the asset, ie the cost of an asset in exactly the same condition
No charge if output tax comes to less than £1,000 or less