ACCA ATX ^UK Syllabus A6. Value Added Tax - Conditions for companies to be treated as VAT group - Past Papers ^{3 / 3}

Your manager has sent you a schedule prepared by Claire Falkner concerning her company, Plad Ltd, and a new company, Quil Ltd, which she intends to incorporate on 1 July 2019. The covering email from your manager details the work he requires you to do.

Attachment: Schedule from Claire Falkner – dated 3 June 2019

Quil Ltd
Quil Ltd will be incorporated, registered for value added tax (VAT) and commence trading on 1 July 2019. It will trade in the UK and be a UK resident company.

From a commercial standpoint, my intention was to own Quil Ltd personally. However, if there is a sufficient tax advantage, I will consider establishing the company as a wholly-owned subsidiary of Plad Ltd.

Value added tax (VAT)
I would like the two companies to register as a group for VAT purposes (to avoid the need to charge VAT on intra group supplies and to generally reduce administration) and for the group to continue to use the annual accounting scheme currently used by Plad Ltd. I appreciate this would mean that the two companies would be jointly and severally liable for the group’s VAT liability.

Extract from the email from your manager – dated 4 June 2019

(b) Group registration for value added tax (VAT) purposes

Explain any additional matters of which Claire should be aware in relation to group registration for VAT purposes.

Tax manager

(b) Group registration for value added tax (VAT) purposes. (3 marks)

Please prepare a memorandum for the client files which addresses the following issues:

(b) Group registration for the purposes of value added tax (VAT)
By reference to the specific information in my memorandum only, set out the matters which will need to be considered when deciding which of the companies should be included in a group registration.

Required: Prepare the memorandum as requested in the email from your manager. 
The following marks are available:

(b) Group registration for the purposes of value added tax (VAT).           (5 marks)

Liza requires detailed advice on rollover relief, capital allowances and group registration for the purposes of value added tax (VAT).

Liza’s business interests:
– Liza’s business interests, which have not changed for many years, are set out below.

– All six companies are UK resident trading companies with a 31 March year end.
– All of the minority holdings are owned by individuals, none of whom is connected with Liza or with each other.

A building (‘Building I’) sold by Bar Ltd:
– Bar Ltd sold Building I on 31 May 2013 for £860,000.
– Bar Ltd had purchased the building on 1 June 2007 for £315,000 plus legal fees of £9,000.
– On 5 June 2007, Bar Ltd had carried out work on the building’s roof at a cost of £38,000 in order to make the building fit for use.
– On 1 July 2012, Bar Ltd spent £14,000 repainting the building.
– Bar Ltd used Building I for trading purposes apart from the period from 1 January 2009 to 30 June 2010.
– It is intended that the chargeable gain on the sale will be rolled over to the extent that this is possible.

A replacement building (‘Building II’) purchased by Bar Ltd:
– Bar Ltd purchased Building II, new and unused, for £720,000 on 1 May 2013.
– Bar Ltd uses two thirds of this building for trading purposes; the remaining one-third is rented out.

The trading activities of the Bar Ltd and Hoop Ltd groups of companies:
– The number of transactions between the Bar Ltd group and the Hoop Ltd group is increasing.
– Vault Ltd makes zero rated supplies; all of the other five companies make standard rated supplies.

Required:
(c) Explain which of the companies in the Bar Ltd and Hoop Ltd groups would be able to register as a single group for the purposes of value added tax (VAT) and discuss the potential advantages and disadvantages of registering them as a single VAT group. (7 marks)