The Chartered Tax Adviser Examination November 2011 Module A VAT including Stamp Taxes Awareness Paper Answers with marks 1
Question 1 Lorry: August 2010 VAT rate 17.5% therefore VAT incurred = 1750. VAT recoverable as goods purchased within 4 years of registration and still on hand at date of registration Legal services: June 2011 so VAT rate 20% therefore VAT incurred = 800. All recoverable as services incurred less than 6 months prior to registration Plumbing stocks: July 2011 so VAT = 20% therefore VAT incurred = 400. Half of the VAT, 200, is recoverable as half of the goods were consumed prior to VAT registration and therefore only half remain on hand on the date of VAT registration Question 2 Input tax is VAT incurred by a taxable person on goods and services supplied to him, or on the acquisition of goods by him from another EU member State, or on the importation of goods from outside the EU, including VAT self charged on reverse charge services, provided the goods or services are used, or to be used, for the purposes of a business carried on, or to be carried on, by him. Question 3 The later of two years after the end of the relevant VAT period; and one year after evidence of fact, sufficient to justify the making of an assessment, comes to the knowledge of HMRC but in any case, not more than 4 years after the end of the relevant VAT period. In cases involving deliberate behaviour resulting in a loss of tax or a loss through failing to register, 20 years after the end of the relevant period. Question 4 2008: Exempt turnover percentage = 1,125,000/4,500,000 = 25% Adjustment percentage therefore equals 15% 25% = 10% VAT to be adjusted = 1/10 th of the total input tax = 22,500 10% = 2,250 VAT repayable to HMRC as exempt use has increased 2009: Exempt percentage = 750,000/5,000,000 = 15% Same as the original recovery rate therefore no adjustment 2010: Exempt percentage 275,000/5,500,000 = 5% Adjustment percentage therefore equals 15% 5% = +10% VAT to be adjusted = 10% of the total input VAT = 22,500 10% = + 2,250 reclaimable from HMRC as taxable use has increased 2
Question 5 As a tax agent, adviser or accountant, HMRC require that you must be formally authorised by your client to deal with HMRC on your client s behalf. HMRC policy is that they will refuse to discuss your client's VAT matters with you if they have not received this formal authorisation. You can use HMRC Online Services to set up a client authorisation, and if your engagement with your client includes electronic submission of VAT returns on their behalf, you must use this on-line option. Alternatively you can ask your client to complete a form 64-8 for agent authorisation, which you or your client must then send to HMRC. Question 6 (1) Point of Sale Scheme: VAT due is calculated by identifying the correct VAT liability of supplies at the point of sale eg by use of electronic tills. (2) Apportionment Scheme: Business work out the value of purchases at different rates of VAT and apply the same percentage to the actual sales income. (3) Direct calculation Scheme: Businesses take the cost price of goods and apply their expected markup to that cost to arrive at an expected selling price, and calculate the VAT due on that expected selling price. Question 7 A VAT Account is a general account that has to show on a VAT period by period basis, two separate sections, known as the VAT Payable portion and the VAT Allowable portion (Payable portion) Total output tax due Total output tax due on acquisitions Total of any tax due on behalf of the supplier All Corrections or adjustments to the VAT payable amount due under the Gen Regs 34, 35, 38 or 38A All adjustments of VAT payable required or allowed for that period under any other Regulations (Allowable portion) Total input tax allowable under section 26 Total input tax allowable on acquisitions under section 26 All corrections or adjustments to the VAT allowable portion required or allowed by Gen Regs 34, 35 or 38 All adjustments to the amount of input tax allowable for that period under any other Regulations 3
Question 8 Input tax recoverable: 4000 + 1500 + 500 plus percentage of 2,500 as follows No special method, therefore standard method based on percentage of taxable supplies over total supplies, 50K + 6K + 9K 50K + 6K + 9K + 22.5K = 74.29% rounded up to 75% 75% of 2500 = 1875 Recoverable therefore 6,000 + 1875 = 7875 Exempt Input tax = 1500 plus 625 = 2,125 which exceeds De Minimis limit of < 625 per month and <50% of total therefore NOT recoverable in this quarter Question 9 (1) If the duration of a lease is such that it is a major interest in land a lease of over 21 years (or in Scotland, for not less than 20 years) that is a supply of goods. (2) Otherwise it will be a supply of services. (3) For a short lease the supply is a continuous supply of services and VAT is due according to the normal supply of services rules; (4) For a lease of over 21 years which is a supply of goods, special rules apply and the goods are treated as separately supplied each time a VAT invoice is raised or payment is received, otherwise all the VAT would be due when the lease is initially granted. Question 10 To be valid for VAT purposes, a credit must reflect a genuine mistake or overcharge or an agreed reduction in the value of the supply and be issued within one month of this being discovered or agreed. It should be clearly headed credit note. It should show: (a) (b) (c) (d) (e) (f) (g) (h) identifying number and date of issue; supplier's and customer's name and address; supplier's registration number; description identifying goods or services for which credit is given; quantity and amount credited for each description and reason for credit, eg returned goods ; total amount credited excluding VAT; rate and amount of VAT credited; number and date of the original VAT invoice. If not possible, HMRC will need to be satisfied that VAT has been accounted for on the original supply. 4
Question 11 SD is payable on transfers of stock or marketable securities where a transfer document is used; SDRT is chargeable on the transfer of chargeable securities where there is no transfer document, such as is the case for example with transfers through CREST, the UK electronic share settlement system. Exceptions include Gifts (including transactions for nil consideration) Most Bonds Transactions within 75% groups Transfers where the consideration is less than 1,000 Non UK securities Tutorial note During the marking process, it was agreed that question 11 was outside the scope of the Awareness VAT syllabus. This was taken account of in the post exam moderation and the CIOT has confirmed that SDRT will not be tested in future. Question 12 When rent is unknown at the start of a lease, the value is calculated based on an estimate of the rent, and the land transaction return (LRT) is completed on that basis and is submitted to HMRC along with payment. As soon as the rent amounts are determined, it is necessary to calculate whether any further SDLT is payable, and if so, a further LTR should be submitted, together with the additional tax, plus interest. 5
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