Value Added Taxes(VAT) UK Standard rated

All about VAT in UK

1. VALUEADDEDTAXES

2. ValueAddedTax
-
ExemptSupplies
are
thosefinishedgoods
:
I
-
It
isan
indirecttax
,
which
is
charged
on
services
on
which
HMRCneither
allows
purchaseofgoods&
services
.
recoveryofVAT
on
raco
material
,
nor
-
Its
rate
is20%
requireschargingofVAT
on
saleof
-VATis
payableby
everyone
on
purchaseof
finishedgood
a
service
.
goodsE
services
-
Thiscategoryincludes
-
However
if
a
person
is
VAT
registered
,
then CommercialLand&Building
VATpaid
can
berecovered
,
ifthatgood
2)Postal
services
willbeused
in
business
.
3)
Accountancy
services
.
-
FinalConsumercannot
recover
VATpaid
.
Burden
E
StandardRated
Zero
RatedExempt
ofUAT
falls
on
final
consumer
. -
Purchase
of
RawMaterial
1
,
000
1
,
000
1
,
000
-
For
VATpurposes
goods
&services
are
divided
-
VAT
on
Rawmaterial(20
%
)
200
200 200
in3
heads
:
-
Recovery
ofvai
paid
on
RM
(200) 200
>IStandardRated
1
,
000
1
,
000
1200
Zero
Rated
-
FixedProfit
1
,
000
1
,
000
1
,
000
3,Exempt
Selling
price 2
,
000
2
,
000
2
,
200
-
Standard
Rated
supplies
are
those
finishedgoods
-
VAT
on
Sale
(201
400
W
-
-
&
services
on
whichtaxdepartmentallows cost
for
Customer 2400
2
,
000
2
,
200
->
recoveryofVAT
on rac
materialandrequires
chargingofUAT
on
saleoffinishedgood
&
services
.
Allgoods&
services
which
are
not Customer
isVAT
RegisteredCustomer
is
notVAT
registered
zero
ratedOexempt
,
are
classified
as
-
Amountpaid
2400
-
Amount
paid
2400
standardrated.
·
RecoveryofVAT
(200
-
VATrecovery
(-(
2
,
000
2400
zero
rated
supplies
are
thosefinishedgoods
&
-
services
on
whichtaxdepartmentallows
recoveryof
UAT
on
raw
materialbut
dont
requirechargingof
VAT
on
saleoffinished
item
.
-
Inthis
categorygoods
&
services
get
cheaper
.
·
Zero
ratedcategoryincludes
:7Medicines
5
,
Educationmaterial
2
,
Basicfood
6:Exports
3,
Residential
&charitableLand
&
Building
4Childerencloth3footwear

3. ·
Residential
ECharitable
Land&building
are
thenit
can
berevokedonly
one
time
classified
inZero
RatedCategory
.
in
first
six
months
.
After
six
monthsitcannot
CommercialLand&Building
iS
classifiedberevokedfor
20years
.
as
Exempt.However
insome
situationsCommercial
Land&Building
can
alsobe
classified
-
Opt
totaxelection
is
favourableforthosebusiness
as
Standardrated. whosecustomers
areVAT
registered
.
Reason
-
VAT
implications
on
Land&buildinggetrelevantbeingthat
VAT
registered
customers
can
ed
on
rentORSale
.on
differenttransactions
recoverVAT
charg
Zero
RatedStandardRatedExempt
Land&Building
⑥
da
I
-
Once
an
"opt
to
tax"
election
is
made
1
Chargingof
VAT
on
sale NOUATwillbe
chargedVATwillbe
chargedNoVATwillbe
charged
2)
ChargingofVAT
on
Rent
NoVATwillbe
charged
VATwillbechargedNoVATwillbe
charged
I
·
CommercialLand&Building
is
classified
as
standardratedduringconstructionperiodand
up
till3yearsaftercompletionofconstruction
.After
this
perioditgetstransferredtoExempt
category
↑
-
RecoveryofVATwill
depend
ona
fact
that
whetherLand&Building
is
beingused
for
taxable
supplies&Rnot
.
Standardvoted&
Zero
Ratedgoods
-
If
a
business
is
usingthatLand&Building
for
Exemptsupplies
,
like
for
producingexemptgoo
O
supplies
&
hasrenteditout
(rentingout
is
alsoexemptuse)then
VAT
on
thatportion
willnotbe
recoverable
.
·
In
case
of
Exempt
use
,
business
canmake
an
electioncalled
as
Opt
totax
.
Through
this
electionthatcompleteLand&building
will
beconsidered
as
used
for
taxable
purpose
.
UAT
recoverywillstartbutin
that
case
VATneed
to
becharged
on
customers
alsolike
onsale
Orenting
out
.

4. z
-
->
-
--
-> - =°
O
-
PartialExemptionrule
->
--- wed -
-> -
--
- - --- =
-
=° - - -
-
-- W
-
- - -- x
-
If
a
business
deals
in
bothtaxable ⑤
-
=
②②° #
-
O
- - --
suppliesandexemptsuppliesthenVATpaid
- # - -
-°
--
-
°
in
relationtotaxablesupplies
willbe Taxable Exempt
recoverable
,
butofexemptsupplieswill
notDirectlyattributable7000 4
,
000
TaxableExempt
berecoverable
.
15
,
000
DirectlyAttributable
22
,000
1
,
000
-
Taxablesupplies
:
Standardrated&
Zero
RatedUnattributable
8010
990 13
,000goodsa
services
19000x89
%
)
19000
x11%
)Tal
Unattributable1820 180
W
-
-
Exemptsupplies
:
Exemptgoods&
services.
30
,
010 t
4990
=
35
,
000
(2000
x
91
%
) (2000
x
9
%
)
↓
2/
-°
Recoverable
NotRecoverable 36
,
820+1180
=
38
,
000
-
Ifany
VATis
paid
on
unattributableactivities
>%oftaxablesupplies
:
175
,
000+110
,000
x100
:
9
a
(not
specificallyrelatedtotaxable
O
exempthead)
%oftaxablesupplies
=
250
,000
+150
,
000 x
100
:
88
.
8% 175
,000
+110
,000
+30
,000
thenthat
VAT
willbeallocatedaccordingto
250
,000
+150
,000
+
50
,000
>
89
%
Round
up
9
%oftaxablesuppliesmadeduringthatperiod.Test#1* Deminimis
test
X
(a)Totalinputtax
is
lessthan
E625/month
I
Test
No
.
1
X
%of
taxablesupplies
:
Taxablesupplies
X100
=
xxx
% 35
,
000
=
11
,
667 X(a)
38
,
000
=
12
,
667/month
Totalsupplies
↓
3
3
any
I
test Round
up
.
~
(b)Exemptsuppliesshouldbelessthan V(b)Exempt
supplies
:
100%
-
91%:
9
--
-
If
a
businesspassesanyofthethree
50
%of
totalsupplies
.
deminimistest
,
then
it
can
recover
itstotal
-
Taxablesupplies
=
89
%
2)Test
No
.
2
X
VAT
.
(Total
VAT
includestaxable&exemptboth)
-
ExemptSupplies
=
100%
-
89%
:
11
.
X
(a)
3
.
8
,000
-
22
,
000
-
13
,
000
=
1
,
000/month
Test# Test#2X 3
(a)Totalinputtax
is
lessthan
E625/month
x
(a)Totalinput
UAT
lessdirectlyattributable V(b)Exempt
supplies
:
100%
-
91%:
9
(b)Exemptsuppliesshouldbelessthan input
UAT
totaxablesupplies
is
less
50
%of
totalsupplies
.
thanE625/month
3,Test
No
.
3W
Test#2 35
,000
-
7000
-
15
,000
:
4
,
333 ~
(a)
1180
=
393/month
(a)Totalinput
UAT
lessdirectlyattributable 3 3
input
UAT
totaxablesupplies
is
less
~
(b)Exemptsuppliesshouldbelessthan ~
(b)
1180
x
100
=
3%%
thanE625/month
50
%of
totalsupplies
.
38
,
000
(b)Exemptsuppliesshouldbelessthan
-
Taxablesupplies
=
89
%
50
%of
totalsupplies
.
-
ExemptSupplies
=
100%
-
89
%:
11
.
-
As
Deminimis
test
3haspassed
:
total
VAT
Test#3 Test#3X
3
of
38,
000
willbe
recovered
.
(a)Exempt
VAT
shouldbelessthan1625/monthX
(a)Exempt
VAT
shouldbelessthan1625/month
4990
=
1663
3
(b)ExemptVATshouldbelessthan
50%
W(b)ExemptVATshouldbelessthan
50%
-
oftotalVAT
.
oftotalVAT
.
4990
x100
:
14%
35
,
000

5. -> x>
O
- -
-
AnnualAdjustment
-
=°
->
T -
=° ->
"¥
-
-VATrecovery(inputtaxclaim)
is
madeatevery
=>
-
T
->-
--e
-x - -
quarterend.However
a
final
annual
adjustment
>
⑩°
O
is
alsomadeattheendofyear
.
Any TaxableExempt
over/underrecovery
is
adjusted
in
Annual DirectlyAttributable52
,
000
15
,
000
adjustment.
38
,000
Unattributable
19
,
780 3220
-
If
AnnualDeminimistest
is
passed
,
thentotal (23
,000x
86
%(23
,000x
14
%
)
VATofcurrentyear
is
recovered.HMRCalso 109
,
780
+18.220
=
128
,
000
allowstotal
VATrecoveryinnextyearquarters>%
of
taxablesupplies
:
1100
,000
+
700
,
000 X100:
8
%
alsoifexpectedannual
inputtax
is
se
1100
,
000
+
700
,000
+300
,000
T
Elmillion
.
86%
Deminimis
test
-
%
taxable
suppliescanbecalculatedannually1Test
No
.1
Xof
and
thenused
on
quarters
,
ratherthan
X(a)128
,000 =
10666/month
calculationat
every
quarterend.
Annual%
of 12
previousyearwillbeused
on
quarters
of ~
(b)Exempt
supplies
=
100%
-
86
%
=
14%
current
year
. 2,Test
No
.
2X
X(a)
128
,
000
-
52
,000
-
38
,000 =
3166/month
12
~
(b)Exempt
supplies
=
100%
-
86
%
=
14%
3
,
Test
No
.
3X
x
(a)
18
,
220
=
1518/monthX
12
~
(b)
18
,
220
x
100
=
142
%w
128
,000
-
VAT
recoverable
as
perAnnual
Adjustment
=
109
,
780
-
Vai
alreadyrecovered
in
Quarterlyadj
.
(78
,
000)
31
,
780

6. #
Capitalgoods
scheme O
- ②
>
-- - x
-
-
-
-
-> #
- >
-
-
When
a
noncurrentasset
is
purchasedand ②
>
②
:
=
=
- -
VAT
is
paid
on
itspurchase
,
thenHMRC
· --
allowsVATrecoveryaccordingtotaxable
-
usein
yearofpurchase
.
-
VATpaid
on
purchase
:
57
,000x
20%=
11
,
400
·
VATpaid
on
purchase
=
70
,
000x
20%
=
14
,
000
E..
Abuilding
was
purchasedfor
E100
,000
+VAT
.
-
VATRecovery
: 11
,
400
x
5=
Yearl
-
Initial
recovery
:
27
=
14
,
000x
55
%
=
7700
Itstaxable
use was
70
%in
yearof
Yearl
=
As
asset
is
a
computeraits
valueis
-
As
assetpurchased
isa
computerwhich
·
Purchase
said
on
purchase
:
E100
,
000x20%
=
200a
-
more
than
E50
,000
:
itschange
in
taxablehas
a
valueof
more
than
50
,
000
therefore
use
willbe
monitoredforyears
.
itstaxable
use
willbemonitoredfor5years
.
-
VATrecovery
=
20
,000
x
70%:
100
↑
Year
2
-
2006 2008
-
Year
2
=
14
,
000x
(70
%
-
55
)
=
420Recover
-
NormallyHMRCignoreschange
in
taxable
use
- 11
,
400
x
(55
%
-
70%
)
=
342Recovery 5years
afteryearofpurchase
.
However
incase
of 5years 2009-Year
3
=
14
,
000 x
(35
%
-
55%
)
:
560
Payable
twoassets
,
HMRCmonitorschange
in
5years
=
taxable
use
.
Year
3
-
2007 2010
-
Year
4
=
14
,
000 x
(69
%
-
55
%
)
=
392
Recover
Land
&buildingworth
E250
,
000
O
more
I 11
,
400
x
(55
%
-
35
%
)
=
456Payable 5years
·
Ifassetissoldbefore
saleadjustment
is
I
②° >
->
- - - -
2005
-
=
- ->
is
monitoredfor
10
years
.
5
years
2011
-
Years
I
14
,
000 x
(95
%
-
55
%
)
=
1120Recover
2Computersworth
E50
,000
OR
moreare
5years
monitoredfor
5years
.
Year4-2008
=11
,
400
x
(55
%
-
69
%
)
=
319
Recover
Adjustment=
VAT
said
on
purchase
x
(Current
%
-
Original%
)
5years
Adjustmentyears
year5-2009
completionof
=11
,
400
x
(55
%
-
95
%
)
:
912Recover
.
adjustmentperiod
,
then syears
madeatlowerof
(a)
VAT
said
on
purchase
x
Remainingyears
x
(100
%
/0
%
-
Original)
-
Adjustmentyears If
VAT
on
Saleis
charged
->
100%
-
(b)
VAI
on
Sale If
VATon
Sale
isnotcharged
-
>0%

7. O
⑫C -> -
T
->
--
#
"¥ > =°°} -
->
=°
#°
--
-x ②
-
->
=
⑫X
⑥°
-
->
-
-> -
-
=
-
> =>
- O
°
- -- -> ⑫xT -> -
> ②>
x - =* --
---
⑨
-
VATpaid
on
purchase
:
547
,000x
20
%
:
109
,
400
-
VAT
paid
on
purchase
=
600
,
000*20%
=
100
,
000
·
Initial
recovery
:
Year
ofPurchase
=
2009
:
109
,
400
x
95
%
=
120%
->
Year
103
,
930
-
Initial
recovery
:
Year
ofPurchase
=
2013
=
100
,
000
X70%
=
70
,
000
- - -
-- --↓
Yearl
-
-
As
asset
isa
landworth
more
than
250
,
000
-
As
asset
isa
Buildingworth
more
than
250
,
000
,
S
itstaxable
use
willbe
monitored itstaxable
use
willbe
monitoredtherefore
10years
.
therefore
10years
.
for for
-
2010
-
Year
2
=
109
,
400
x
(60
%
-
95
%
)
:
3829Payable
2014
Year
2
=
100
,
000x
(55
%
-
70
%
)
=
1500Payable
10
years loyears
-
2011
-
Year
3
=
109
,
400
x
(85
%
-
95
%
)
:
1094Payable
2015
Year
3
:
100
,
000x
(65
%
-
70
%
)
=
500
Payable
loyears
10
years
-
2012
-
Year
4
=
109
,
400
x
(59
%
-
95
%
)
:
3938
Payable
2016
Yearl
I
100
,
000x
(89
%
-
70
%
)
:
1900Recover
10
years
10
years
-
2013-Year5
:
109
,
400
x
(97
%
:95
%
)
-
219
Recovery
2017Year5
=
100
,
000x
(25
%
-
70
%
)
=
4500Payable
lo
years
10
years
ed
-
2014
-
Year
6
:
109
,
400
x
(48
%
-
95
%
)
:
5142Payable
-
SaleAdustment
=
lowerof
-
(a)109
,
400
X
4 years
x
(100
-
95
%
)
=
2188
- (b)
VAT
on
Sale
:
950
,
000x20
%
:
190
,
000
I
10yearsVATon
sale
eged (a)
100
,
000x
5 years
x
(10
%UntorSale
arg
,
000
Recovery
-SaleAdjustment
=
lowerof
T
10
years
loyears Recovery
(b)
VAT
on
Sale
:
750
,
000X20%
:
150,
000

8. is
-
For
Services
Regtrationfor
VAT
Disaggregation
:
It
is
a
taxavoidancetechnique
-
If
a
businessgetsregisteredfor
vai
,
then
underwhichbusinessesdisaggregatethemself
!
It
mustbepurchasedfor
business
it
canrecover
its
VAT
paid.Howeverithasto
smallerparts
,
so
thatregistrationlimit Itmustbepurchasedwithin
tothencharge
VAT
on
itssales
. can
beavoided. 6monthspriortoregistration
.
-
Registrationfor
VATisof
twotypes
:
-
Taxdepartment
can
make
a
re-aggregation
Grook
VAT s
having
a
commonParent
,
whichon
a
"¥
Comp orderandrequireculsoryregistration
VAT
registration
. 50%+sharesin
thosecompanies
,
can
+
2
,
Voluntaryregistration
·
Reaggregation
is
made
on
thebasis ge
Compulsoryistration
:
VAT
registrationgets
ofstrategic
,
operational
&financialdependencythemselvesregisteredfor
VATas
a
singlereg
compulsoryif
a
businesstaxable
supplies of
each
part
on
eachother
.
grow
single
exceedsregistrationlimit Voluntaryregistration
VAT
returnwillbe
filedfor
whole
Forcompulsoryregistration·
of
Essioolyeart
-
This
means
that
a
business
is
gettinga
growl
7
.
This
will
save
AdminCost
.
shouldbesatisfied. itselfvoluntarilyregisteredfor
VAT
,
despite
-
NoVAT
on
intragrouptransactions
.
1Historictest
:
Taxablesuppliesofpreviousthat
no
comp
testhaspassed.
-
PartialExemption
Deminimis
test
can
getpassedatculsory
12monthsexceed#85
,000
/year
.
-
Businessesget
voluntaryregistrationdue
to
grouplevel.
-
Thistesthasto
becheckedatdifferent
reasons
:
·
It
is
notmandatoryfor
allgroupcompanies
>
UAT
endofeverymonth. !
Business
maybedealing
inzeroratedto
comein
groufreturn
,
some
companies
trationshouldbedonewithin veratereturnalso
.
-
Regis
supplies may
file
30 2
-
However
&
daysofthistestbeingsatisfied,
Targetcustomer
is
VATregistered
.
grow
sel
Vai
returnmayleadtopenalties
other
wise
registration
willbe 3)
It
maybenecessary
for
thatbusiness
on
whole
group
if
any
one
Co
·
makes
an
deemedatendof
30
days
.
activity
&
error.
2
,
Future
test
:
Taxablesuppliesofprevious
-
VAT
registrationhasits
own
flaws
also
·
Due
toExemptsuppliesofany
one
Co
.
Ilmonthsandnext
I
month
budgeted,
!Adminburden
wholegroupdeminimistestmay
fail.
haveexceed85
,
000/yearlimit.
2)
Riskofpenalties Divisional
VATreturn
-
Thistest
alsohave
to
bechecked
3)goodsmay
getexpensive
for
VAT
-
If
a
companyhasmultiplebusinessdivisions
everymonth. unregisteredcustomers
.
withinitself
,
andthosebusinessdivisions
-
Registration
is
mandatoryimmediately
,
Pre-RegistrationInputTax
are
veryunrelatedbusinessfrom
each
otherwiseregistration
willbe
deemed.
-
VAT
paidpriortoregistration
can
also othersuch
thatmergingtheir
VAT
returns
is
3
ExemptionfromCompulsoryregistration be
recovered
when
a
business
gets difficult
,
thenHMRC
allows
separate
VAT
return
-
If
each
businessdivision
.
anybusinessonlydealsinzero
ratedregisteredfor
VAT
6
Conditions
:
suppliesthenitwillbe
exemptedfrom
-
Forgoods
:
compulsoryregistration
even
ifitstaxable !Goodmustbe
purchasedfor
business
-
Each
Division
should
be
a
separate
business
suppliesexceed
85
,000
limit. 2
Goodmustbeboughtwithin4
-
Mergingtheirreturnsshouldbe
dif
to
ficult
istration ether
-
Howevervoluntaryregistration
willbeallowed. yearspriortoreg
·
All
divisionreturnsshould
be
filedq
3Goodmustbepresent
in
business
-
Salesbetweendivisionsshouldbe
ignored,
on
dateofregistration
.
as
they
are
partofsingleCo
.

9. -
VAT
registration
,
deregisteration
andPartial
-
VATissues
on
saleofbusiness
exemption
ruleswillapply
on
Co
·
asa
whole
,
ratherthan
on
each
division
.
saleofceasedbusinesssaleofOngoingbusiness
Deregisterationfrom
VAT
-
If
a
businesswillbe
-
UAT
is
charged
on
ts ceased3
willthen
-
If
a
businessgederegisteredfrom
VAT salevalueofongoing
thenit
willnotbeableto
recover
besold
,
thenrules business
.VAT
paid
on
itspurchases
.
Furtheritwill
of
deregistration
willbe
-
Howeverif
itqualifiesfor
nothavetochargeany
VAT
on
itssale
.
followed.
TransferofGoingConcern
·
Onceasationbusiness(TOGC)businessrulesthen
-
Attimeofderegistration
VATis
payable of
onmu
ofall
standard
ra
tedgoodsheldderegistrationgets
noVATwill
be
charged
on
deregistrationdate
,
as
if
they
are
sold. compulsory
on
sale
of
business
.
/
Ifthis
VATpayable
is
lessthanE1
,
000
in
-
Onderegistration
VAT
is -
TOGCbusinessruleapplies
totalthenit
willbewaived.
payable
on
Mu
ofallwhenfollowingconditions
-
Deregistration
can
bedonevoluntarilyif
standardratedgoods
.
are
satisfied
:
taxablesupplies
ofnext
12
months
are
-
If
VAT
is
lessthan
"¥
Business
is
sold
as
expectedtobelessthan
83
,
000.
#
,000
thenit
is
waivedgoing
concern
·
Deregistration
is
compulsorywithin30
days
-
NoVAT
after
2,Buyerintendstocontinue
when
a
business
ceases
to
dobusinessofderegistration
.
that
business
as
taxablesupplies going
concern
without
any
significant
change
ORbreak
3
,
Buyershouldbe
registeredfor
VAT
.

10. VAT
on
overseas
transactions VATaccounting
schemes
-
VAT
accounting
schemes
are
for
smallbusiness
.
CashAccounting
scheme
2AnnualAccounting
scheme
Rulesforgoods(tangibleitems)Rulesfor
services
(intangibles) 3)
FlatRatescheme
.
-
Ifgoods
are
soldoutside
UK
-
If
services
are
purchasedby
a
CashAccountingScheme
ds
are
exported
,
then VAT
registered
customer
.
Then
VATwill
i.
goo
-
Normally
VATis
assesed
on
accrualbasis
.
thetransactionwillbe
treated
be
assesed
in
customercountry
.
-
However
ifthis
schemeis
joined
,
then
UATwill
asa
zeroratedtransaction
.
-
If
servicesare
purchasedby
a
VAT
beassesed
on
ActualCashbasis
.unregisteredcustomer
,
then
VATwillbe
-
Benefitofcashaccounting
schemeis
:
-
If
thegoods
are
importedto assessed
in
suppliercountry.
"¥
Cash
flow
will
improve
asno
VATwill
Uk le
on
Credit
saleuntilcustomer
it
goods
are
purchased
in
bepayab
abro
it
UKfromad
,
then
VAT
is
paysfor
payable
on
them
on
port
,
before 2No
refund
issuesincase
ofBaddebt
.releaseof
goods
.
IfCustomer
->
Conditionsfor
Cashaccountingscheme
are
is
VAT
registered
,
thenVAT
paid 1Taxablesuppliesshould
belessthan
can
berecoveredlater
.
E1350
,
000
peryear
2
.
If
onceschemeis
joined
thenit
can
becontinuedtilltaxable
suppliesof
E1600
,
000
peryear
3)No
defaulIshouldhavebeendone
in
-
VAT
in
past
.
relationto
AnnualAccounting
scheme
-
Normally
UAT
return
is
filed
atendofevery
quarter
.
-
If
a
businessjoins
AnnualAccounting
scheme
thenit
willhave
tofileonly
one
Vai
return
atendofeachyear
.
-
Thiswill
save
AdminburdenECost.
-
Duringtheyear
VATwillbepaidaccording
topreviousyearVAT
.
It
can
bepaid
in
10
monthlyinstalmentsO
in
4Quarterly
instalments
.

11. 10
monthlyinstalments relationto
VAT
in
past
.
Petty
issuesofVAT
Previous
year
VAT
:
permonthinstalment
.
FlatRateScheme
-
VAT
on
Entertainmentexpensescannot
be
-
InflatrateschemeallVATrules
are
recoveredexceptifEntertainment
is
for
-
Payment
willbe
in
ignored
,
andjust
a
flatrate(singlerate)employeesOR
for
overseas
customers
.
d
-
14thmonthoftheyear ofVAT
is
givenwhich
hastobe -vai
on
giftscannot
be
recovered
,
except
2
,
5thmonthofTheyear
applied
on
total
revenue
topayUAT
.
following
:36thmonthofTheyear
-
InFlatrate
scheme
,
no
concep+
o
1
Gift
isa
sampleOR
L
4
,
7th
monthoftheyear typeofsupplies
,
no
issue
ofinput 2
Giftworthlessthan
50
O
5
,
8thmonthofTheyear
faxOR otherVATrule
.
3)
Giftto
overseas
customer
.
-
Only
Flat=
any
6
,
9thmonthoftheyear ratehasto
be
applied
on
-
In
case
of
Bad
debt
,
VAT
paidto
HMRC
7
,
10thmonthoftheyear
total
revenue
topay
Vai
.
can
berecoverediffollowingconditions
are
3,
It
monthoftheyear
·
ThisFlat
rate
is
based
on
NetVATsatisfied
:
9
,
12thmonthoftheyear
paidbyindustryaverage
.
Normallyit
is
!Debt
is
writtenoff
in
FS
10s
14thmonthoftheyear around
14%
2
,
6
monthshavepassedafterdue
>
Actual
VATofcurrentyear
XXX
-
Infirst
yearofscheme
,
Flatrate
is
date
XXX
VAT
alreadypaid
in
instalments()discountedby
7
%
3
,
Claimshouldbewithin4years
of
Finaladjustment
XXX
-
conditionsforFlatrate
scheme
are
:
VAT
paid
.
Total
revenue
shouldbelessthan
4
Quarterly
instalment
r
VAT
=
x**
-
>
quartery
he E150
,
000/year
.
amount
.
2,
If
Total
revenue
exceeds
230
,
000
-
Payment
willbemade
in
then
schemeshouldbeleft
14thmonthoftheyear
3
,
NOVAT
defaultshouldexist
in
past
-
2
,
Ithmonthoftheyear
the
3
,
10thmonthof
the
year
ear
"¥
14thmonthofY
>
Actual
VATofcurrentyear
XXX
VAT
alreadypaid
in
instalments(xxx)
Finaladjustment
XXX
->
Conditionsfor
Annualaccountingscheme
are
1
,Taxablesuppliesshould
belessthan
E1350
,
000
peryear
2
.
If
onceschemeis
joined
thenit
can
becontinuedtilltaxable
suppliesof
E1600
,
000
peryear
3,No
defaultshouldhavebeendone
in

12. 7 [P.T.O.
Section A – BOTH questions are compulsory and MUST be attempted
1 Your manager has received an email from Lamar. Lamar is the managing director and majority shareholder in REP
Ltd. Lamar and REP Ltd are clients of your firm. Your manager has forwarded the email to you together with an email
detailing the work you are required to do.
Email extract from Lamar: dated 7 September 2020
Potential investment in JAY Ltd
We are in discussion with the management of CRO Ltd regarding the establishment of a new company, JAY Ltd. If
it proceeds, JAY Ltd will commence trading on 1 April 2021 and carry on its business activities in the country of
Garia, where it will manufacture computer components.
CRO Ltd is proposing that REP Ltd would own 30% of the ordinary share capital of JAY Ltd with CRO Ltd owning the
remaining 70%. However, we regard this potential investment as somewhat risky, such that if we decide to proceed,
we may prefer to own just 20% of JAY Ltd rather than 30%.
JAY Ltd is expected to be profitable in the year ending 31 March 2022. However, there is the possibility that it will
be loss making in either that year or in future years.
JAY Ltd’s tax adjusted trading profit for the year ending 31 March 2022 is budgeted to be £135,000, all of which
will relate to its activities in Garia. JAY Ltd will have no other source of taxable income and will not make any
chargeable gains during this year.
We have not been involved in a joint venture like this before and we have no experience of carrying on a business
outside the UK. We would appreciate your advice on the following three extracts from the documentation provided
to us by CRO Ltd:
(i) ‘It has not yet been determined whether JAY Ltd will be resident in the UK or in Garia. If JAY Ltd is resident in
the UK, it will be considered to be carrying on its business through a permanent establishment in Garia.’
(ii) ‘If JAY Ltd is resident in the UK, we will consider making an election to exempt its overseas trading profits from
UK tax.’
(iii) ‘We have been advised that if JAY Ltd is resident in Garia, this will not result in a charge under the controlled
foreign company (CFC) rules.’
Purchase of investment property
We are considering the purchase by REP Ltd of a new, unused commercial building for £200,000 plus 20% value
added tax (VAT). REP Ltd would then grant a 20-year lease of this building to a retailer. Will REP Ltd be able to
recover the VAT charged by the vendor on the sale of this building?
Proposed gift of shares to trust
I established a discretionary trust for the benefit of my nieces and nephews on 1 August 2010.
On 1 November 2020, I am planning to give 20,000 of my shares in REP Ltd to this trust. After I have made the
gift, I will still own 60,000 shares (60% of the company). You have already advised me that these shares are not
relevant business property for the purposes of business property relief, due to the investment activities of REP Ltd.
Accordingly, I am aware that the gift on 1 November 2020 may result in an inheritance tax (IHT) liability. If I decide
to make the gift, I will pay any IHT due.
I have made the following gifts in the past:
£
1 August 2010 Cash to trustees on the creation of the trust 120,000
1 February 2016 Cash to brother 35,000
1 May 2016 Additional cash to trustees 170,000
1 July 2020 Cash to sister 45,000
None of these gifts has resulted in an IHT liability.
PAGE 112
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>
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13. 8
Email extract from your manager: dated 8 September 2020.
Please prepare notes for use at a meeting with Lamar.
I want you to lead the meeting. You should therefore set out the notes in a manner which will make it easy for you
to refer to them during the meeting.
The notes should cover the following matters:
(a)Knowledge obtained from advising other clients
We have a number of existing clients which trade from permanent establishments situated overseas, and a few
years ago we had a client with a presence in the country of Garia.
Set out the points you will make in order to explain the extent to which REP Ltd can benefit from the knowledge
we have gained from advising these other clients.
(b)Investment in JAY Ltd
Additional Information
– REP Ltd and CRO Ltd are UK resident companies which prepare accounts to 31 March each year.
– Business profits generated in Garia are subject to 13% business tax in that country.
– There is no double tax treaty between the UK and Garia.
(i)Residency of JAY Ltd
Explanations of the relevance of the country of residency of JAY Ltd in relation to:
– the amount of corporation tax payable in the UK and Garia in respect of its profits; and
– the relief available to REP Ltd if JAY Ltd’s business in Garia were to make a trading loss.
Before you start, take some time to identify the different possibilities which need to be addressed,
recognising that we do not yet know what percentage of JAY Ltd will be owned by REP Ltd.
(ii)Election to exempt the profits of JAY Ltd’s overseas permanent establishment from UK tax
List the implications of JAY Ltd making this election.
(iii)Controlled foreign company (CFC) rules
I can confirm that a CFC charge will not arise if JAY Ltd is resident in Garia. However, I want to provide
Lamar with an explanation of the purpose of the CFC rules and the charge which can be levied under
them.
(c)Purchase of investment property
Explain the matters which Lamar should be aware of in relation to REP Ltd recovering the value added tax (VAT)
which would be incurred on the purchase of the investment property.
There is no need to consider partial exemption or the capital goods scheme.
(d)Proposed gift of shares to trust on 1 November 2020
A calculation of the inheritance tax (IHT) which would be payable by Lamar if he were to give 20,000 shares
in REP Ltd to the trust on 1 November 2020 as planned. Your calculation should indicate the availability or
otherwise of all relevant annual exemptions.
Where relevant, you should use the following values for a single ordinary share in REP Ltd:
Shareholding Up to 25% 26% to 50% 51% to 74% 75% or more
Value per share £8 £11 £17 £24
Lamar currently owns 80% of the ordinary share capital of REP Ltd. The remaining shares in the company are
owned by individuals who have no connection with Lamar.
Tax manager
PAGE 113
--
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= --
=> @}
⑦@° -
--
O
② -

14. 9 [P.T.O.
Required:
Prepare the meeting notes as requested in the email from your manager. The following marks are available:
(a) Knowledge obtained from advising other clients. (5 marks)
(b) Investment in JAY Ltd.
(i) Residency of JAY Ltd. (9 marks)
(ii) Election to exempt the profits of JAY Ltd’s overseas permanent establishment from UK tax. (3 marks)
(iii) Controlled foreign company (CFC) rules. (3 marks)
(c) Purchase of investment property. (5 marks)
(d) Proposed gift of shares to trust on 1 November 2020. (6 marks)
Professional marks will be awarded for the approach taken to planning the content, the clarity of the explanations
and calculations, the effectiveness with which the information is communicated, and the overall presentation and
style of the notes. (4 marks)
(35 marks)
PAGE 114
②
=
②

15. RepLtd
&
-
BuildingpurchasedbyRepLtd
is
commercialbuilding,
which
isnew
aunused
,
thereforeitwillberegarded
in
standard
ratedheadfor3years
.
-
VAT
paid
on
purchase
can
berecovered.
-
After3yearsofconstruction
,
thisbuilding
will
converttoExemptcategory.Howeverat
thattime
an
electionofopttotax
willbeavailablethrough
which
building
can
beconvertedbacktostandardrated
head
.
-
Election
ofopttotax
can
berevolved
in
first
six
months
.
Howeverafterthatit
will
bebindingfor
20years
.

16. 12
Section B – BOTH questions are compulsory and MUST be attempted
3 Amelia is a sole trader. She is seeking advice in respect of a loss incurred by her business, the tax implications of
replacing a warehouse, and deregistration for value added tax (VAT) purposes.
Amelia:
– Has owned her unincorporated business, AS Trading, for many years.
– Has savings income of £6,000 each year.
– Had rental income of £11,600 from a UK residential property in the tax year 2019/20.
– Has no rental income in the tax year 2020/21 as the letting ceased on 31 March 2020.
– Sold this property on 30 April 2020.
AS Trading – tax adjusted trading profit/(loss):
£
Year ended 31 December 2019 30,000
Year ending 31 December 2020 (forecast) (14,000 )
Amelia – recent capital disposals:
– Amelia’s capital disposals are as follows:
Asset Date of disposal (loss)/gain
£
Painting 1 June 2019 (11,000 )
UK rental property 30 April 2020 45,000
Shares in Swartz Ltd 16 August 2020 28,000
– All of these disposals were made to unconnected persons.
– Amelia had never lived in the UK rental property.
– Swartz Ltd is an unquoted trading company.
– Amelia sold the whole of her 3% shareholding in Swartz Ltd.
Proposed sale of Warehouse 1:
– Amelia acquired Warehouse 1 on 1 May 2014 for £86,000.
– Amelia will sell Warehouse 1 on 1 May 2021 for its expected market value at that date of £118,000.
– AS Trading occupies three out of the four floors of Warehouse 1.
– The remaining floor has been rented to tenants throughout Amelia’s ownership of the building.
Proposed purchase of Warehouse 2:
– Amelia will purchase this warehouse, and a forklift truck for use in the warehouse, on 1 March 2021.
– Amelia will pay £83,000 for Warehouse 2, and will pay £23,000 for the forklift truck.
– Amelia will start to use the whole of Warehouse 2 in her business from 1 May 2021.
AS Trading – taxable turnover for value added tax (VAT) purposes:
£
Year ended 31 December 2019 92,000
Year ending 31 December 2020 (forecast) 65,000
Year ending 31 December 2021 (forecast) 79,000
– Amelia expects that the taxable turnover of the business will continue to increase gradually in the next few years.
– AS Trading makes wholly standard-rated supplies.
– Amelia wishes to apply for voluntary deregistration for VAT purposes on 31 December 2020.
PAGE 117
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17. 13
Required:

(a) (i) State the reliefs available to Amelia in respect of her trading loss of the year ending 31 December 2020,
on the assumption that Amelia does not wish to carry forward any of the loss. (3 marks)

(ii) Explain, with supporting calculations, how much tax would be saved for each of the reliefs identified in
requirement (a)(i). (8 marks)

(b) Explain, with supporting calculations, the capital gains tax and income tax implications for Amelia of the
proposed sale of Warehouse 1, and the acquisition of Warehouse 2 and the forklift truck. (6 marks)

(c) Explain why Amelia can apply to voluntarily deregister for value added tax (VAT) purposes on 31 December
2020, from what date her VAT registration would be cancelled, and the immediate consequences for her of
deregistering. (3 marks)
(20 marks)

[P.T.O.
PAGE 118
-
-x>- -
------
-
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- -> -
=>
->
- --
-> - -
②
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⑳
-

18. Amelia
Ie
getvoluntarilyderegistered
from
VAT
on
31December
2020
,
as
hertaxablesuppliesofnext
12
months
are
E79
,000
,
which
is
lessthan583
,000
limit
-
Shewillbe
deregisteredfrom
same
day
of31December
2020
.
-
On
deregistration
Ameliahastopay
VAT
OO
of
20%
on
all
standard
rated
g
da
held
on
that
day.Ifthis
Vai
payable
islessthanE1
,
000
thenitgetswaived.

19. PAGE 127
-
⑦x
-
>no
compulsoryreg
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-
---
-
---
-

20. Tomas(c)
-
Tomas
can
consideraboutrecoveryof
VAT
paidif
he
getsregisteredfor
VAT
.
VAT
paid
on
all
taxablesupplies
can
berecovered.
-
Tomasshouldthinkabout
VAT
registration
ofitscustomers
.
If
Customers
are
VAT
registeredthenTomasregistrationof
VATwillbe
benefical
as
they
willbe
able
to
recoverVai
paid
-

21. PAGE 135
-
②
-
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Taxable
applies
⑥
VAT
on
Purchase
:
290
,
000x20
%
:
58
,
000
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--

22. Rosa
-
Onsaleofretailunit
on
5
April
2022,
Retailunit
was
in
Exemptcategoryof
VAT
.
It
was
a
commercial
building
of
construction
were
completed
whose
Byeas
a
tax
was
notdone
. No
-VATon
salewillbe
charged.
·
FinaladjustmentunderCapitalgoods
scheme
willbelower
o
:
--
It58
,000
x
&years
x
(0
%
=
100
%
)
=
11
,600
Payable
10years
-VAT
on
Sale
=
O