ACCA ATX ^UK Syllabus A6. Value Added Tax - Land and Buildings - Past Papers ^{1 / 4}

The finance director of Achiote Ltd would like your advice on the tax implications of opting to tax a commercial building.

Achiote Ltd – purchase and rental of a commercial building:
– Achiote Ltd has recently purchased a two-year-old commercial building from an unconnected vendor.
– The building will be rented to an unconnected company, Rye Ltd.
– Rye Ltd is a small local company, which supplies goods to Achiote Ltd but does not charge value added tax (VAT) on these sales.

Required:
(d) (i) On the assumption that Rye Ltd makes only taxable supplies, state TWO legitimate reasons why it might not charge value added tax (VAT) on its sales to Achiote Ltd. (2 marks)

(ii) Explain whether or not it would be financially beneficial for Achiote Ltd to opt to tax the commercial building, and the implications for Rye Ltd if it chooses to do so. (4 marks)

Note: The following indexation factors should be used for this question, where applicable:

Your firm has been asked to provide advice to Granada Ltd. Granada Ltd wants advice on the corporation tax and value added tax (VAT) implications of the recent acquisition of an unincorporated business.

Granada Ltd:
– Is a UK resident trading company which manufactures knitwear.
– Prepares accounts to 31 December each year.
– Is registered for VAT.
– Acquired the trade and assets of an unincorporated business, Starling Partners, on 1 January 2016.

Starling Partners:
– Had been trading as a partnership for many years as a wholesaler of handbags within the UK.
– Starling Partners’ main assets comprise a freehold commercial building and its ‘Starling’ brand, which were valued on acquisition by Granada Ltd at £105,000 and £40,000 respectively.
– Is registered for VAT.
– The transfer of its trade and assets to Granada Ltd qualified as a transfer of a going concern (TOGC) for VAT purposes.
– The business is forecast to make a trading loss of £130,000 in the year ended 31 December 2016.

Required:
(c) Explain the value added tax (VAT) implications for Granada Ltd in respect of the acquisition of the business of Starling Partners, and the additional information needed in relation to the building to fully clarify the VAT position. (4 marks)

Hyssop Ltd requires advice on the value added tax (VAT) implications of the sale of a warehouse.

Hyssop Ltd:
– Is a UK resident trading company.
– Prepares accounts to 31 December each year.
– Pays corporation tax at the small profits rate.
– Is registered for VAT.
– Leased a factory on 1 February 2015.

Acquisition of a factory:
– Hyssop Ltd acquired a 40-year lease on a factory on 1 February 2015 for which it paid a premium of £260,000.
– The factory is used in Hyssop Ltd’s trade.

Disposal of a warehouse:
– Hyssop Ltd has agreed to sell a warehouse on 31 December 2015 for £315,000, which will give rise to a chargeable gain of £16,520.
– Hyssop Ltd had purchased the warehouse when it was newly constructed on 1 January 2012 for £270,000 (excluding VAT).
– The warehouse was used by Hyssop Ltd in its trade until 31 December 2014, since when it has been rented to an unconnected party.
– Until 1 January 2015, Hyssop Ltd made only standard-rated supplies for VAT purposes.
– Hyssop Ltd has not opted to tax the warehouse for VAT purposes.
– The capital goods scheme for VAT applies to the warehouse.

Required:

(c) Explain, with the aid of calculations, the VAT implications of the disposal of the warehouse on 31 December 2015. (4 marks)