VAT

Question 1

If a business use of an asset has an element of private use, how do you treat recovering input tax?

Answer 1

Input tax cannot be recovered

Question 2

What is Test 1 of the simplified partial exemption test?

Answer 2

• Total input tax =< 625 pm on average

- Exempt supplies =< 50% of all supplies

Question 3

What is Test 2 of the simplified partial exemption test?

Answer 3

• Total input tax less input tax attributable to taxable supplies =< 625
• Exempt supplies =< 50% of all supplies

Question 4

What is the standard partial exemption test

Answer 4

Total taxable supplies/Total supplies = %

% x non-attributable input tax = taxable

Question 5

When can exempt input VAT be recovered?

Answer 5

If de minimus is met, see Hardmans 273

Question 6

When does the capital goods scheme apply?

Answer 6

When a business spends a large sum on a non-current asset used to make both taxable and exempt supplies

Question 7

What can be initially recovered under the capital goods scheme

Answer 7

• Wholly taxable use - 100% input VAT
• Wholly exempt use - 0% input VAT
• Partly taxable use - can recover proportion based on taxable use in the quarter

Question 8

How do you adjust the input VAT recoverable under the capital goods scheme? What about on sale?

Answer 8

Total input VAT / 10 or 5 yrs x (% now - % on initial recovery)

• on sale, you also do (full interval years - intervals passed)

Question 9

What adjustments are made for the sale of goods under the capital goods scheme?

Answer 9

• If disposal was taxable - assume 100% taxable use

- If disposal exempt - assume 0% taxable use

Question 10

What property transactions are exempt from VAT?

Answer 10

• sale of land
• lease of any building
• sale of >3yr old commercial building
• sale of existing residential building

Question 11

What property transactions are zero rated?

Answer 11

• construction and sale of new residential buildings

Question 12

What property transactions are standard rated?

Answer 12

• construction of commercial building
• sale of new (<3yrs) commercial buildings
• owner of commercial land and buildings can opt to waive the exemption of VAT

Question 13

For the capital goods scheme, when does the first interval run until?

Answer 13

To the end of the VAT period (should be in question)

Question 14

VAT implication of a commercial building owner opting to tax:

Answer 14

If they opt to tax then the building become standard rated and:

• they can recover input VAT on construction - would not be able to do this otherwise as the construction is exempt
• can recover input VAT on rent charged
• tenants VAT registered can recover input VAT
• exempt tenants can not recover any input
• option to tax is irrecoverable for 20 years
• option to tax can be revoked in the cooling off period (first 6 years)
• sale of building within 20 years is standard rated - buyer can only recover if they also opt to tax

Question 15

How should the dispatch of goods in the EU be treated if the customer is VAT registered?

Answer 15

• supply is zero rated (if VAT number quoted in invoice and proof it has gone to the EU)
• customer pays local rate

Question 16

How should the dispatch of goods in the EU be treated if the customer is NOT VAT registered?

Answer 16

• charge 20% on supply

Question 17

What are the VAT implications of exports OUTSIDE the EU?

Answer 17

zero rated if there is evidence of where it is going

Question 18

What are the VAT implications of imports OUTSIDE the EU?

Answer 18

• importer accounts for VAT at their local rate

- if they are VAT registered then can recover

Question 19

Up to how long can VAT be recovered on services performed before registering for VAT?

Answer 19

6 months

Question 20

Up to how long can VAT be recovered on goods purchased before registering for VAT?

Answer 20

4 years

Question 21

Can input VAT be recovered on entertaining suppliers?

Answer 21

no

Question 22

What is multiple/composite supply?

Answer 22

When an item is purchased that has 2 identifiable elements that are treated differently for VAT (e.g a course that is zero rated and the purchase of books for that course which is standard rated)

Question 23

What is single supply?

Answer 23

When a package is purchased and the elements are not easily identifiable and the smaller elements are insignificant to the main element (meals on a flight)

Question 24

Is there any sale adjustment under the capital goods scheme if the seller opts to tax before selling?

Answer 24

No

Question 25

What is the criteria for a VAT group?

Answer 25

Under common control, i.e 51% group companies and have a fixed establishment in the UK

Question 26

Why should companies selling standard rated goods be included in a group together?

Answer 26

Reduces administration as intra-group sales are not subject to VAT and therefore only one return is required

Question 27

Why should zero rated traders be excluded from VAT groups?

Answer 27

Leaving them out will retain the monthly cash flow advantages from monthly returns

Question 28

Why should/could exempt traders be excluded from VAT groups?

Answer 28

• it would affect the partial exemption status of the group and may restrict recovery of input VAT
• if the company is de minimus, then it can be included as it will not affect the recoverability of input VAT

Question 29

Is input VAT recoverable on zero rated supplies?

Answer 29

Yes, as it is still a taxable supply