VAT
Question 1/4
The following information relates to the VAT return of the CT Ltd for the three months to 30
November 2022. All figures are VAT-exclusive unless stated otherwise.
(i) Standard rated supplies made to customer were £28,800. A cash discount of 2.5%
was offered to customers who paid within 28 days and this discount was taken by
customers who bought 50% of the supplies made during the quarter.
The figure of £28,800 includes a £1,600 sale, which was made to a customer in
September 2022. This customer went bankrupt in November 2022 and had a bad
debt of £1,600 was written off in the company’s book on 30 November 2022.
On 15 November 2022, a customer was invoiced for £4,800 in relation to a sale of
standard-rated goods. These goods were paid for on 4 December 2022 and were
made available to customers to the customer on 10 December 2022. This sale is
NOT included in the above figure of £28,800 and was not eligible for cash discount.
(ii) Standard-rated goods bought for resale or consumption cost £9,280. Standard-rate
services cost £5,200.
(iii) On 1 September 2022, the company was charged VAT of £1,960 on the purchase of
motor car with emissions of 167g/km. Private use of this car by one of the company’s
employees accounts for 50% of its mileage. Maintenance charges in relation to the
car were £280 for the quarter and fuel cost were £520. The company reclaims input
tax on all car fuel.
The company is now considering an application to join the flat-rate scheme for small
businesses. Standard-rated sales are expected to run at £34,500 per quarter from now on
and purchases of standard-rated items on which VAT may be reclaimed are expected to be
£16,500 per quarter. All these figures exclude VAT. The flat-rate percentage applicable to
CT Ltd is 9.5%.
Required:
(a) Compute the VAT payable to (or repayable by) HMRC for the three months to 30
November 2022.
(b) State the circumstances in which VAT registration is compulsory and explain why
some persons may choose to register voluntarily.
(c) Explain the flat-rate scheme for small businesses. Would CT Ltd be eligible to join
this scheme? If so, would it be beneficial for the company to join the scheme?
1
, Answer 1/4
(a)
Output VAT:
Sales to VAT registered customers
Taking the discount (50%) 14,400 x 97.5% x 20% 2,808
Not taking the discount (50%) 14,400 x 20% 2,880
Fuel scale charge 423 x 1/6 71
5,759
Input VAT:
Standard-rated goods 9,280 x 20% 1,856
Standard-rated services 5,200 x 20% 1,040
Car maintenance 280 x 20% 56
Car fuel 520 x 20% 104
(3,056)
Net payable to HMRC (by 7 January 2023) 2,703
Notes:
• Output tax is calculated on the selling price less any cash discount taken.
• Output tax is payable in relation to the sale to the bankrupt customer. Bad debt relief
cannot be claimed until at least 6 months have elapsed.
• The tax point of the £4,800 supply is the invoice date (Earlier than the date of
invoice/payment or the date on which the goods were made available.
• Input tax cannot be reclaimed in relation to a car not used wholly for business
purposes.
2
Question 1/4
The following information relates to the VAT return of the CT Ltd for the three months to 30
November 2022. All figures are VAT-exclusive unless stated otherwise.
(i) Standard rated supplies made to customer were £28,800. A cash discount of 2.5%
was offered to customers who paid within 28 days and this discount was taken by
customers who bought 50% of the supplies made during the quarter.
The figure of £28,800 includes a £1,600 sale, which was made to a customer in
September 2022. This customer went bankrupt in November 2022 and had a bad
debt of £1,600 was written off in the company’s book on 30 November 2022.
On 15 November 2022, a customer was invoiced for £4,800 in relation to a sale of
standard-rated goods. These goods were paid for on 4 December 2022 and were
made available to customers to the customer on 10 December 2022. This sale is
NOT included in the above figure of £28,800 and was not eligible for cash discount.
(ii) Standard-rated goods bought for resale or consumption cost £9,280. Standard-rate
services cost £5,200.
(iii) On 1 September 2022, the company was charged VAT of £1,960 on the purchase of
motor car with emissions of 167g/km. Private use of this car by one of the company’s
employees accounts for 50% of its mileage. Maintenance charges in relation to the
car were £280 for the quarter and fuel cost were £520. The company reclaims input
tax on all car fuel.
The company is now considering an application to join the flat-rate scheme for small
businesses. Standard-rated sales are expected to run at £34,500 per quarter from now on
and purchases of standard-rated items on which VAT may be reclaimed are expected to be
£16,500 per quarter. All these figures exclude VAT. The flat-rate percentage applicable to
CT Ltd is 9.5%.
Required:
(a) Compute the VAT payable to (or repayable by) HMRC for the three months to 30
November 2022.
(b) State the circumstances in which VAT registration is compulsory and explain why
some persons may choose to register voluntarily.
(c) Explain the flat-rate scheme for small businesses. Would CT Ltd be eligible to join
this scheme? If so, would it be beneficial for the company to join the scheme?
1
, Answer 1/4
(a)
Output VAT:
Sales to VAT registered customers
Taking the discount (50%) 14,400 x 97.5% x 20% 2,808
Not taking the discount (50%) 14,400 x 20% 2,880
Fuel scale charge 423 x 1/6 71
5,759
Input VAT:
Standard-rated goods 9,280 x 20% 1,856
Standard-rated services 5,200 x 20% 1,040
Car maintenance 280 x 20% 56
Car fuel 520 x 20% 104
(3,056)
Net payable to HMRC (by 7 January 2023) 2,703
Notes:
• Output tax is calculated on the selling price less any cash discount taken.
• Output tax is payable in relation to the sale to the bankrupt customer. Bad debt relief
cannot be claimed until at least 6 months have elapsed.
• The tax point of the £4,800 supply is the invoice date (Earlier than the date of
invoice/payment or the date on which the goods were made available.
• Input tax cannot be reclaimed in relation to a car not used wholly for business
purposes.
2
