ACCA TX ^UK Syllabus F. Value Added Tax - Operation of and advantages of VAT special schemes - Past Papers ^{1 / 1}

Triangle Ltd is registered for value added tax (VAT) and uses the annual accounting scheme.

For the year ended 31 December 2015, the net VAT payable by Triangle Ltd was £73,500.

For the year ended 31 December 2014, the net VAT payable by Triangle Ltd was £47,700.

What monthly payments on account of VAT must Triangle Ltd make in respect of the year ended 31 December 2015 prior to submitting its VAT return for that year?

A Nine monthly payments of £7,350
B Nine monthly payments of £4,770
C Ten monthly payments of £4,770
D Ten monthly payments of £7,350

Garfield has been registered for valued added tax (VAT) since 1 April 2008. Garfield has previously completed his VAT returns himself, but for the quarter ended 31 March 2015 there are some items for which he is unsure of the correct VAT treatment.

Garfield’s partly completed VAT computation for the quarter ended 31 March 2015 is shown below. All of the completed sections of the computation are correct, with the omissions marked as outstanding (O/S).

Unless otherwise stated, all of the figures in the following notes are stated exclusive of VAT.

Note 1 – Discounted sale
On 10 February 2015, a sales invoice for £4,300 was issued by Garfield in respect of a standard rated supply. To encourage this previously late paying customer to pay promptly, Garfield offered a 10% discount for payment within 14 days of the date of the sales invoice. The customer paid within the 14-day period.

This invoice has not been taken into account in calculating the output VAT figure of £22,500, and this is the only sale for which Garfield has offered a prompt payment discount.

Note 2 – Equipment
During the quarter ended 31 March 2015, Garfield acquired some new equipment at a cost of £12,400 from a VAT registered supplier situated in the European Union.

Note 3 – Impairment losses
On 31 March 2015, Garfield wrote off three impairment losses. Details are as follows:

Note 4 – Entertaining
During the quarter ended 31 March 2015, Garfield spent £960 on entertaining overseas customers. This figure is inclusive of VAT.

Note 5 – Motor expenses
The motor car purchased on 1 January 2015 is used by Garfield 60% for business mileage. During the quarter ended 31 March 2015, Garfield spent £1,008 on repairs to the motor car and £660 on fuel for both his business and private mileage. Both of these figures are inclusive of VAT.

Additional information
Garfield does not use the cash accounting scheme, the annual accounting scheme or the flat rate scheme, but has read that the use of these schemes can be beneficial for small businesses such as his.

Garfield’s VAT exclusive annual turnover is currently £450,000, and this is expected to steadily decrease over the coming years. He pays for most of his purchases and expenses on a cash basis, but allows many of his customers 30 days credit when paying for sales.

Required:
(b) State which VAT schemes Garfield is currently permitted to use, and explain, with supporting reasons, which ONE of the available schemes would appear to be the most beneficial for him to use.

Notes:
1. Your answer should be confined to the information given in the question.
2. You are not expected to explain how any of the schemes operate. (3 marks)

On 1 November 2014, the company signed a contract valued at £86,000 for completion during November 2014.

All of the above figures are stated exclusive of value added tax (VAT). Smart Ltd only supplies services and all of the company’s supplies are standard rated.

Smart Ltd allows its customers 60 days credit when paying for services, and it is concerned that some customers will default on the payment of their debts. The company pays its purchase invoices as soon as they are received.

Smart Ltd does not use either the VAT cash accounting scheme or the annual accounting scheme.

Required:
(c) State the circumstances when a VAT registered business like Smart Ltd, which is not using the VAT cash accounting scheme, would still have to account for output VAT at the time that payment is received from a customer. (2 marks)

On 1 November 2014, the company signed a contract valued at £86,000 for completion during November 2014.

All of the above figures are stated exclusive of value added tax (VAT). Smart Ltd only supplies services and all of the company’s supplies are standard rated.

Smart Ltd allows its customers 60 days credit when paying for services, and it is concerned that some customers will default on the payment of their debts. The company pays its purchase invoices as soon as they are received.

Smart Ltd does not use either the VAT cash accounting scheme or the annual accounting scheme.

Required:
(d) Advise Smart Ltd as to why it should be beneficial for the company to use the VAT cash accounting scheme. (3 marks)

Zim has been registered for value added tax (VAT) since 1 April 2005. The following information is available for the year ended 31 March 2015:

(1) Sales invoices totalling £126,000 were issued, of which £115,200 were in respect of standard rated sales and £10,800 were in respect of zero rated sales. Zim’s customers are all members of the general public.

(2) On 31 March 2015, Zim wrote off two impairment losses which were in respect of standard rated sales. The first impairment loss was for £780, and was in respect of a sales invoice which had been due for payment on 15 August 2014. The second impairment loss was for £660, and was in respect of a sales invoice which had been due for payment on 15 September 2014.

(3) Purchase invoices totalling £49,200 were received, of which £43,200 were in respect of standard rated purchases and £6,000 were in respect of zero rated purchases.

(4) Rent of £1,200 is paid each month. During the year ended 31 March 2015, Zim made 13 rental payments because the invoice dated 1 April 2015 was paid early on 31 March 2015. This invoice was in respect of the rent for April 2015.

(5) During the year ended 31 March 2015, Zim spent £2,600 on mobile telephone calls, of which 40% related to private calls.

(6) During the year ended 31 March 2015, Zim spent £1,560 on entertaining customers, of which £240 was in respect of overseas customers.

All of the above figures are inclusive of VAT where applicable. The expenses referred to in notes (4), (5) and (6) are all standard rated.

Zim does not use either the cash accounting scheme or the flat rate scheme. He has forecast that for the year ended 31 March 2016, his total sales will be the same as for the year ended 31 March 2015.

Required:
(b) Explain why Zim will be permitted to use the VAT flat rate scheme from 1 April 2015, and state the circumstances in which he will have to leave the scheme. (2 marks)

Zim has been registered for value added tax (VAT) since 1 April 2005. The following information is available for the year ended 31 March 2015:

(1) Sales invoices totalling £126,000 were issued, of which £115,200 were in respect of standard rated sales and £10,800 were in respect of zero rated sales. Zim’s customers are all members of the general public.

(2) On 31 March 2015, Zim wrote off two impairment losses which were in respect of standard rated sales. The first impairment loss was for £780, and was in respect of a sales invoice which had been due for payment on 15 August 2014. The second impairment loss was for £660, and was in respect of a sales invoice which had been due for payment on 15 September 2014.

(3) Purchase invoices totalling £49,200 were received, of which £43,200 were in respect of standard rated purchases and £6,000 were in respect of zero rated purchases.

(4) Rent of £1,200 is paid each month. During the year ended 31 March 2015, Zim made 13 rental payments because the invoice dated 1 April 2015 was paid early on 31 March 2015. This invoice was in respect of the rent for April 2015.

(5) During the year ended 31 March 2015, Zim spent £2,600 on mobile telephone calls, of which 40% related to private calls.

(6) During the year ended 31 March 2015, Zim spent £1,560 on entertaining customers, of which £240 was in respect of overseas customers.

All of the above figures are inclusive of VAT where applicable. The expenses referred to in notes (4), (5) and (6) are all standard rated.

Zim does not use either the cash accounting scheme or the flat rate scheme. He has forecast that for the year ended 31 March 2016, his total sales will be the same as for the year ended 31 March 2015.

Required:
(c) Explain whether or not it would have been beneficial for Zim to have used the VAT flat rate scheme for the year ended 31 March 2015.

Notes:
1. You should assume that the relevant flat rate scheme percentage for Zim’s trade would have been 12% throughout the whole of the year ended 31 March 2015.

2. Your answer for this part of the question should be supported by appropriate calculations. (2 marks)

Clueless Ltd is registered for value added tax (VAT), but currently does not use any of the special VAT schemes. The company has annual standard rated sales of £1,200,000 and annual standard rated expenses of £550,000.

Both these figures are exclusive of VAT and are likely to remain the same for the foreseeable future. Clueless Ltd is up to date with all of its tax returns, including those for corporation tax, PAYE and VAT. It is also up to date with its corporation tax, PAYE and VAT payments. However, the company often incurs considerable overtime costs due to its employees working late in order to meet tax return filing deadlines.

Clueless Ltd pays its expenses on a cash basis, but allows customers two months credit when paying for sales.

The company does not have any impairment losses. Clueless Ltd is planning to purchase some new machinery at a cost of £22,000 (exclusive of VAT). The machinery can either be purchased from an overseas supplier situated outside the European Union, or from a VAT registered supplier situated in the European Union. Clueless Ltd is not a regular importer and so is unsure of the VAT treatment for this purchase.

Required:
(i) Explain why Clueless Ltd is entitled to use both the VAT cash accounting scheme and the VAT annual accounting scheme, and why it will probably be beneficial for the company to use both schemes; (6 marks)

On 6 April 2011 Flick Pick, aged 23, commenced employment with 3D Ltd as a film critic. On 1 January 2012 she commenced in partnership with Art Reel running a small cinema, preparing accounts to 30 April. The following information is available for the tax year 2011–12:

Value added tax (VAT)
(1) The partnership voluntarily registered for VAT on 1 January 2012, and immediately began using the flat rate scheme to calculate the amount of VAT payable. The relevant flat rate scheme percentage for the partnership’s trade is 12%.

(2) For the quarter ended 31 March 2012 the partnership had standard rated sales of £59,700, and these were all made to members of the general public. For the same period standard rated expenses amounted to £27,300. Both figures are stated inclusive of VAT.

(3) The partnership has two private boxes in its cinema that can be booked on a special basis by privileged customers. Such customers can book the boxes up to two months in advance, at which time they have to pay a 25% deposit. An invoice is then given to the customer on the day of the screening of the film, with payment of the balance of 75% required within seven days. For VAT purposes, the renting out of the cinema boxes is a supply of services.

Required:
(d) (i) Explain whether or not it was beneficial for the partnership to have used the VAT flat rate scheme for the quarter ended 31 March 2012;

(iii) Advise the partnership as to when it should account for output VAT on the renting out of its private boxes to privileged customers. (4 marks)