As the company is in liquidation bad debt relief can be claimed in full.

Transcription

1 Part 1 Question 1: A) Fleming Limited As the company is in liquidation bad debt relief can be claimed in full. Amount reclaimable = 20% x 560 = B) Williams Plc The invoice is over six months old therefore Jagger can claim relief on the VAT element of the outstanding balance. Amount reclaimable Total invoice value 1,140 Payment on account (480) total 660 VAT element of 660 = 110 Bad debt relief = 110 c) Norfeld VAT status of Norfeld is irrelevant, invoice is over six months old and can be written off in full. Bad debt relief = 160 x 20% = 32 Total bad debt relief claimable = = 254 Question 2: 1. Export Notification 2. Written Order Confirmation 3. Certificate from purchaser detailing goods whereabouts 4. Shipping notification Question 3: Treatment of going concern: 1) Business must continue in a similar state to which it is currently being operated. 2) Transferor must be VAT registered, and transferee must also be registered or become registered as a result of the transfer 3) There should be no break in trade between transfer 4) Transferee may take the VAT registration number of the current business but will take any history with it Question 4:

2 1) Architect Architect fees are standard rated for VAT purposes. VAT 1994, Sch8, Group 5 states architect as falling outside zero rating 2) Sale to associate Sale of first grant is to Associated Company. This is a dwelling and will be zero rated. The associate company will let the home. This will be grant of leasehold and will be exempt. 3) Conversion work Conversion is a dwelling into multiple dwellings is reduced rate. If the building is a Listed Building it will be Standard rated. 4) Renovation of Home If the house has not been lived in for more than two years, any renovations will be subject to VAT at reduced rate. (VAT 94, Sch7a, Group 7) Question 5: Advantage: 1) Easy to administer Disadvantage: VAT reclaimable may be lost as a result of lower % Question 6: a) VAT is due deemed supply b) VAT is not due stolen property Nil c) Gift to consumer VAT is due on the deemed supply Question 7: 1) Coffee beans Zero rated (VAT 94, Sch8, GP1 items overriding exception) 2) Sparkling water Standard rated part of catering

3 3) Heated pie Standard rated this is classified as catering as it is meant to be consumed hot. 4) Sandwich Zero rated not consumed on premises therefore not classified as catering Question 8: a) Motorcycle: - Used solely for business use - Not a car - VAT reclaimed in full = 1,600 b) Rental of car: Rental costs are redeemable = 116 c) Fuel for business use: Reclaimable as VAT receipt attached = 10 d) Van for private use: Not reclaimable as for private use only = nil Total = 1,726 Question 9: 1) Late payment of VAT - error on VAT return 2) Reasonable grounds for mistake Question 10: a) Exempt b) STD rated c) STD rated d) Exempt Question 11: 1) German customer B2B customer, with no VAT registration will be treated as a B2C customer for VAT purposes. Consumers (B2C) are liable for VAT at the rate where the supply was made from.

4 VAT will be charged at UK rates of VAT. 2) Charities Charities are VAT registered establishments. VAT chargeable at UK rates. 3) USA USA is not within EU and therefore falls outside the scope of UK VAT. No VAT is chargeable on these supplies. 4) Australia/Milan Services are supplied to wherever the beneficiary resides. In this case it is Milan not Australia. Providing Milan provide the VAT registration they will be charged no VAT (B2B). They may be liable to reverse charge in Milan. Question 12: a) Irrespective of whether the invoice is paid on time or not, the VAT is calculated on the discounted rate. Price of packets 4,500 20% 900 total 5,400 Output VAT declared = 900 Customer would pay 5, = 5,900 b) Discount is dependent on future sales. They have made no further orders. The discount will not apply. If they make further orders a credit note can be raised and the items re-invoiced at discounted rate. Output VAT = 20% x 2,900 = $580 Question 13: VAT Grouping: Advantage: 1) Easier to administer 2) No VAT chargeable on group transactions Disadvantages: 1) If one company ceases, others become liable for any VAT due. 2) Partial exemption calculators required if any company makes exempt supplies

5 Part 2 Question 1: Ashworth Ave Co Company Address 6 th November 2013 Hariet March Address Dear Hariet, I am writing with regards to your recent enquiry regarding VAT for your business. I understand you have little knowledge of VAT so I trust the following will assist in your understanding. Registration for VAT: You are liable to register for VAT when your taxable supplies exceed the threshold for registration. This threshold is currently 77,000. There are two ways of determining this; historical test and future test. Under historical test we look at the turnover achieved in the last 12 months. You have made 60,000 and have failed this test and do not need to register. The future test looks at income to be made in next 30 days. In October you are going to make only 20,000 on the commission. You therefore still do not need to register. Delivery of the commission will take place in January 2014, and revenue in this time will exceed the threshold. You will need to register by end of January 2014 and charge VAT from 1 st February. You may wish to consider registering voluntarily. If you do so you will need to charge VAT from that date. No VAT will be due on the commission. Time of supply rules: The basic rule for supply is the date on which the goods are dispatched. If you receive any monies before this date, or issue an invoice the basic tax point is overridden and becomes date of receipt/invoice. If the basic date has not been overridden then if an invoice is issued within 14 days of basic date, the invoice date becomes the tax point. Deposits from galleries: Deposits are treated separately from the actual purchase of the item. The deposit constitutes a sale and VAT should be charged on this. Tax point for deposit will be date payment is received. If goods are returned, a credit will be raised for the deposit. Output tax will be reclaimed.

6 If goods are sold, an invoice will be raised with a credit for the deposit. Output tax on the sale will be reduced by output tax on deposit. If goods are damaged, no refunds are given and output tax has already been accounted for. Cash accounting: Cash accounting means you only pay VAT or reclaim VAT at the point payment is made. This improves cash flow of the business, especially if customers are poor payers as you have noted regarding the commission. In order to register for the scheme your annual turnover must be below 1,350,000. I trust this helps clarify your queries but should you require anything further please do not hesitate to contact me. Yours faithfully Tax Advisor Appendix 1 June 15,000 July 15,000 August 15,000 September 15,000 October 20,000 80,000 Assumption: By receipt I have assumed you mean incurred. If you meant customers did not pay until then the 60,000 may need to be attributed over a 12 month period. Even so if this was the case, 11 months to September = 11/12 x 60,000 = 55,000 October = 20,000 75,000 Question 2: Memorandum: To: Lewis Hal From: Tax Manager Date: 6 th November Subject: Alice Fletcher Lewis, I have read through your notes regarding Alice Fletcher and my comments are as follows: VAT Liability of Supplies:

7 Personal Tuition:- VAT 1994/Sch9 states that private tuition is exempt for a subject ordinarily taught in school. Alice is teaching business French and German so I would say this falls outside of this and will therefore be subject to VAT at standard rates. Text books:- If the books are sold separate to the course they will be zero rated (VAT94, Sch8). If they are included within the price of course they will be deemed a single supply and will become standard rated. Language DVD s:- DVD s are not listed in either VAT94, Sch 7a, 8 or 9. These would therefore be standard rated. Business Premises:- The grant of a leasehold in a commercial building is exempt. No VAT is due on rent. Alice may opt to tax the part of the building. In doing so she will need to charge VAT at standard rate. She needs to consider potential tenants as if they are not VAT registered they will be unable to claim VAT back. Reclaim VAT:- Alice is making taxable supplies. She can therefore claim input tax back on purchases. If any supplies are exempt, such as rent or courses (if treated as taught at schools), she will be required to calculate VAT on a partial exemption basis. Pre-registration expenditure:- Vat can be reclaimed on goods purchased within four years prior to registration, or six months for services. a) computer and printer: VAT can be claimed in full ( 200 = 1,000 + VAT 20%) b) Legal advice: Constitutes services and is prior to six month deadline. No VAT reclaimable. c) Language DVD s: As the goods have been resold, Alice would not be able to reclaim VAT on 60 of them. The remaining 15 can be reclaimed as VAT will be chargeable on these when sold. Input tax reclaimable = 15x4x20% = 12 d) Marketing: Corporate entertainment of clients is blocked and so no VAT can be reclaimed on this expenditure. If you need any further clarification please let me know. Tax Manager

8 Question 3: 1) Quarter ending Taxable supplies = 12,000 Exempt supplies = 5,500 % taxable = 12,000 12, ,500 = = 69% Non attributable purchases = 15,000 -> taxable element = 69% x 15,000 = 10,350 exempt element = 4,650 Taxable purchases = 7, ,350 = 17,350 VAT = 17,350 x 20% = 3,470 Exempt supplies VAT = 4650 x 20% = 930 Exempt Supplies VAT is De Minimis as it is less than 625 per month ( 1,875/Qtr) VAT can be reclaimed on both STD and exempt supplies. Input VAT reclaimable STD rate 3,470 Exempt 930 4,400 Quarter ending Taxable supplies 10,000 Exempt supplies 5,500 % Taxable = 10,000 10, ,500 = 64.5% = 65% Expenditure Taxable = Stock 8,500 = Overheads 35% x 14,000 9,100 17,600 Exempt = Locker room 5,000 = Overheads 35% x 14,000 4,900 9,900 Tax due on taxable = 17,600 x 20% = 3,520 Tax due on exempt = 9,900 x 20% = 1,980 This is not De Minimis as over the quarterly threshold. Only taxable input tax reclaimable = 3,500

9 Quarter ending Taxable supplies 15,000 Exempt supplies nil -> 100% taxable -> input tax reclaimable on 20% = 4,400 Quarter ending Total taxable supplies for the year = 52,000 (12, , , ,000) Total exempt supplies for year = 56,000 (5, ,500 + nil + 45,000) % taxable supplies = 52,000 52, ,000 = 48.15% = 49% Taxable purchases = 7, , , ,000 = 32,500 Exempt purchases = nil + 5,000 + nil + nil = 5,000 Non attributable purchases = 15, , , ,000 = 54,000 Non attributable split between: Taxable: 49% x 54,000 = 26,460 Exempt: 51% x 54,000 = 27,540 Tax on taxable supplies = 20% (26, ,000) = 15,692 Tax on exempt supplies= 20% (27, ,000) = 16,708 Exempt supplies are not de minimis as exceed the limits. Input tax claimable for year = 15,692 Claim in quarter: 1 = 4,400 2 = 3,520 3 = 4,400 4= 3,372 Total 15,692 2) 1) Was he provided with sufficient information to be able to calculate these. Question 4: 1) Failure to notify: As Michael as failed to notify he will incur penalties as follows: Max Deliberate and concealed 100% Deliberate and not concealed 70% Any other case 30%

10 It would seem he has not deliberately tried to avoid registration so the max penalty would be 30%. This can be reduced to minimum penalties as follows: Prompted Disclosure Unprompted <12 months 10% 0% >12 months 20% 10% Michael notified HMRC within 12 months. This was unprompted. His penalty therefore will be between 0 and 30%. Penalty based on lost revenue: 1 st Feb 31 st Oct = 9,500 x 9 months = 85,500 VAT on this = 17,100 Penalty will be maximum of 30% x 17,100 = 15,130 2) Mitigation: VAT 994, S70 1. Michael may lodge an appeal or go to tribunal to reduce the penalty 2. If HMRC commissioner has already reduced penalty, a tribunal may overule this reduction 3. Tribunal cannot take account of: a. insufficiency of funds b. no significant loss of VAT c. acted in good faith 3) Reasonable excuse: Reasonable excuse means Michael has taken every step to determine whether or not he is liable for VAT. He has spoken about the overseas treatment so this would go in his favour that he has looked into the matter. Cash flow issues does not warrant a reasonable excuse. The record of VAT from customer will not constitute a reasonable excuse for not paying the penalty. 4) If he had not applied for VAT this would constitute a deliberate failure to notify. Penalties would be determined as follows: Prompted Unprompted Max Min Min Deliberate, concealed Deliberate, not concealed

11 5) If Michael refused, this would be tax evasion. Tax evasion is illegal. i) report matter to money laundering ii) continue to act as this would constitute a tip off iii) not tell Michael that he was under investigation 6) Must not disclose any personal data to anyone but individual or person they have authorised to act on behalf. This includes: a. address b. financial data Must provide to police, HMRC if requested to do so.