VAT and the Contract Flashcards
What is the purpose of VAT in a property transaction?
A. To charge an additional tax on property sales regardless of the seller’s VAT status
B. To tax the supply of certain goods and services by VAT-registered businesses
C. To ensure all property sales are exempt from taxation
D. To allow only buyers to reclaim VAT on a purchase
B. To tax the supply of certain goods and services by VAT-registered businesses
Explanation: VAT applies to taxable supplies made by VAT-registered businesses. It is not charged on all property transactions—some are exempt or zero-rated.
Which type of commercial property sale is standard-rated at 20% VAT?
A. Any commercial property over 3 years old
B. Any commercial property under 3 years old
C. Any commercial property with an option to tax in place
D. Both B and C
D. Both B and C
Explanation: New commercial property (less than 3 years old) is automatically standard-rated. Older commercial property becomes standard-rated if the seller has opted to tax.
What is the VAT treatment for newly constructed residential property?
A. Standard-rated at 20%
B. VAT-exempt
C. Zero-rated at 0%
D. Subject to the seller’s discretion
C. Zero-rated at 0%
Explanation: Newly built residential property is zero-rated, meaning no VAT is charged to the buyer, but the seller can recover input tax from HMRC.
Under the Standard Commercial Property Conditions (SCPC), what is the default VAT assumption?
A. VAT is always included in the purchase price
B. The property is standard-rated unless a special condition applies
C. The buyer does not need to consider VAT unless notified
D. VAT treatment depends on the nature of the property and seller’s tax decisions
D. VAT treatment depends on the nature of the property and seller’s tax decisions
Explanation: SCPC Condition 2 assumes commercial property is standard-rated. However, VAT treatment may vary depending on the property type, option to tax, and special conditions.
A VAT-registered property developer sells a commercial building that is 18 months old. How is VAT applied?
A. VAT-exempt because the property is a commercial building
B. Standard-rated at 20% VAT
C. Zero-rated because the building is new
D. VAT applies unless an exemption or special condition applies
D. VAT applies unless an exemption or special condition applies
Explanation: New commercial property (less than 3 years old) is standard-rated unless an exemption applies (such as TOGC treatment). A contract should clarify if VAT applies or if a special condition modifies it.
A VAT-registered investor buys a 10-year-old commercial building with existing tenants. The seller has opted to tax. What is the VAT treatment?
A. The buyer must pay VAT at 20% on the purchase price
B. The transaction is automatically VAT-exempt
C. The buyer must apply for VAT exemption before completion
D. VAT only applies if the building has been renovated
A. The buyer must pay VAT at 20% on the purchase price
Explanation: If the seller has opted to tax, the sale becomes standard-rated, and the buyer must pay VAT on the purchase price.
A commercial property is being sold as an investment with tenants in place. The buyer and seller want to avoid VAT on the purchase. What special condition should be included?
A. The transaction is treated as a Transfer of a Going Concern (TOGC)
B. The seller must opt to tax the property before completion
C. The buyer must declare the property VAT-exempt
D. The parties must include a VAT indemnity clause
A. The transaction is treated as a Transfer of a Going Concern (TOGC)
Explanation: TOGC rules allow VAT-free transfers of investment properties with tenants if the buyer and seller meet HMRC requirements.
A company buys a commercial warehouse and wants to continue leasing it out. The seller has not opted to tax. What should the buyer do to charge VAT on rent?
A. Opt to tax the property themselves
B. Automatically charge VAT on rental income
C. Request the seller to opt to tax before completion
D. VAT cannot be charged on commercial property rent
A. Opt to tax the property themselves
Explanation: The option to tax is personal to the owner. If the buyer wants to charge VAT on rent, they must opt to tax separately.
A seller has exercised the option to tax on a commercial property. The buyer is a bank, which provides VAT-exempt services. What issue arises?
A. The buyer can reclaim VAT paid on the purchase
B. The seller must refund the VAT to the buyer
C. The buyer cannot recover VAT, making it a 20% cost increase
D. The property automatically becomes VAT-exempt
C. The buyer cannot recover VAT, making it a 20% cost increase
Explanation: Banks and financial institutions provide VAT-exempt services, meaning they cannot reclaim VAT. If the seller has opted to tax, the buyer must pay VAT but cannot recover it.
Under the SCPC, which special condition allows for VAT treatment to be customized?
A. Special Condition 3
B. Special Condition 6
C. Special Condition 9
D. Special Condition 12
C. Special Condition 9
Explanation: SCPC Special Condition 9 allows modifications to the default VAT treatment, including VAT exemption (A1) and TOGC (A2) options.
