Question 3a
Examiners Report

This question concerned a partially exempt close company for the purposes of value added tax (VAT). It was in three main parts.

The first part concerned two alternative ways in which a computer was to be provided to a shareholder who was not employed by the company.

Despite knowing the relevant rules, candidates did not perform as well as they could have done in this part for two reasons.

Firstly, they failed to consider all of the aspects of the situation and secondly, they did not answer the question set.

Most candidates appreciated that the provision of the computer would give rise to a distribution but many failed to address the capital allowances position of the company.

This was important because it differed in the two alternative situations.

Similarly, many candidates failed to address the tax treatment of the loss on the transfer of the existing computer in the second alternative.

Candidates will benefit if they think before they write and identify all the different aspects of the transaction. They should then address each of the aspects in a concise manner.

The failure to answer the question set related to the need to determine the after-tax cost for the company.

Most candidates focussed on the tax treatment for the individual, which meant that they missed out on some of the available marks.