VAT

50 Jogger Ltd (B) (TX 12/08) (amended)

Jogger Ltd is a manufacturing company and has been

registered for value added tax (VAT) since 1 April 2008.
From that date until 30 June 2013 the company’s VAT
returns were all submitted on time. Since 1 July 2013
the company’s VAT returns have been submitted as
follows:
50 Jogger Ltd (B) (TX 12/08) (amended)
Quarter ended VAT paid Submitted
£
30 September 2013 42,700 One month late
31 December 2013 41,200 On time
31 March 2014 38,900 One month late
30 June 2014 28,300 On time
30 September 2014 49,100 On time
31 December 2014 63,800 On time
31 March 2015 89,100 Two months late

Jogger Ltd always pays any VAT that is due at the same time as the related
return is submitted.
50 Jogger Ltd (B) (TX 12/08) (amended)
Required
(a) State, giving appropriate reasons, the default surcharge
consequences arising from Jogger Ltd’s submission of its
VAT returns for the quarter ended 30 September 2013 to the
quarter ended 31 March 2015 inclusive, at the times stated.
You may assume that Jogger Ltd is not a small business for
the purposes of the default surcharge regime.
(6 marks)
(b) Advise Jogger Ltd why it might be beneficial to use the VAT
annual accounting scheme, and state the conditions that it
will have to satisfy before being permitted to do so.
(4 marks)
 Answer
(a) The late submission of the VAT return for the quarter ended 30
September 2013 will have resulted in HM Revenue and Customs
(HMRC) issuing a surcharge liability notice specifying a
surcharge period running to 30 September 2014.
The late payment of VAT for the quarter ended 31 March 2014
will have resulted in a surcharge of £778 (£38,900 × 2%)
because this is the first default in the surcharge period. The
surcharge period will also have been extended to 31 March 2015.
The late payment of VAT for the quarter ended 31 March 2015
will therefore have resulted in a surcharge of £4,455 (£89,100 ×
5%) because this is the second default in the surcharge period.
The surcharge period will also have been extended to 31 March
2016.
 Answer
(b) The reduced administration from only having to submit one VAT
return each year should mean that default surcharges are avoided
in respect of the late submission of VAT returns.
In addition, making payments on account based on the previous
year’s VAT liability will improve both budgeting and possibly
cash flow if Jogger Ltd’s business is expanding.
Jogger Ltd can apply to use the annual accounting scheme if its
expected taxable turnover for the next 12 months does not
exceed £1,350,000 exclusive of VAT.
However, the company must be up to date with its VAT returns
before it is allowed to use the scheme.
 57 Long Ltd group (B) (TX 06/14) (amended)
Long Ltd owns 100% of the ordinary share capital of both Wind Ltd
and Road Ltd. Long Ltd and Road Ltd run freight transport
businesses, whilst Wind Ltd provides transport related insurance
services.

Long Ltd, Wind Ltd and Road Ltd are not registered as a group for
value added tax (VAT) purposes. The following VAT information is
available for the quarter ended 31 March 2015:
57 Long Ltd group (B) (TX 06/14) (amended)
Long Ltd
(1) All of Long Ltd’s sales are standard rated for VAT.
(2) Output VAT of £52,640 was charged in respect of sales. This
figure includes output VAT of £1,760 on a deposit received on
28 December 2014. The deposit was in respect of a contract
which was completed on 6 January 2015, with a sales invoice
being issued on 20 January 2015.
(3) In addition to the above, Long Ltd also charged output VAT of
£1,940 on sales to Wind Ltd and output VAT of £960 on sales to
Road Ltd.
 57 Long Ltd group (B) (TX 06/14) (amended)
(4) The managing director of Long Ltd is provided with a
company motor car which is used for both business and private
mileage. The director reimburses Long Ltd for the 40% private
use element. For the quarter ended 31 March 2015, input VAT
of £140 was incurred in respect of the total cost of fuel.

(5) Input VAT of £14,720 was incurred in respect of expenses. This

figure includes input VAT of £560 in respect of repairs to the
managing director’s motor car, but it does not include the input
VAT in respect of the cost of fuel (see note (4) above).
57 Long Ltd group (B) (TX 06/14) (amended)
(6) In addition to the above, Long Ltd has discovered that it
has not been claiming for the input VAT of £18 which it
has paid each month since 1 January 2009 for the hire of a
photocopier.

Wind Ltd
(1) All of Wind Ltd’s sales are exempt from VAT.
(2) Input VAT of £7,330 was incurred in respect of expenses.
This includes input VAT of £1,940 incurred on purchases
from Long Ltd.
 57 Long Ltd group (B) (TX 06/14) (amended)
Road Ltd
(1) All of Road Ltd’s sales are zero rated for VAT.
(2) Road Ltd registered for VAT on 1 January 2015 and this is the
company’s first VAT return.
(3) Input VAT of £3,120 was incurred in respect of expenses. This
includes input VAT of £960 incurred on purchases from Long Ltd.
(4) In addition to the above, Road Ltd incurred input VAT in respect of
advertising expenditure as follows:
£
April 2014 640
November 2014 380
1,020
57 Long Ltd group (B) (TX 06/14) (amended)

Required

Calculate the amount of value added tax (VAT) payable or

recoverable, if any, by Long Ltd, Wind Ltd and Road Ltd for
the quarter ended 31 March 2015.
(10 marks)
 Answer
Long Ltd – VAT return for the quarter ended 31 March 2015
£ £
Output VAT
Sales £(52,640 – 1,760) 50,880
Group sales £(1,940 + 960) 2,900
Charge to director £140 × 40% 56
Input VAT
Expenses 14,720
Fuel 140
Hire of photocopier £18 × 51 918
(15,778)
VAT payable 38,058
 Answer

Tutorial notes
1 The tax point for the deposit is the date of payment, so this will have
been included in output VAT for the quarter ended 31 December 2014.
2 No adjustment is required in respect of the repairs to the motor car
as such input VAT can be reclaimed provided there is some business
use.
3 Refunds of VAT are subject to a four-year time limit, so in addition to
the input VAT for the hire of the photocopier incurred during the
quarter ended 31 March 2015, Long Ltd can also claim for the input
VAT incurred during the period 1 January 2011 to 31 December 2014.
 Answer

Wind Ltd – VAT return for the quarter ended 31 March 2015
£
Output VAT 0
Input VAT (0)
VAT payable/recoverable 0

Tutorial note
Wind Ltd’s sales are exempt from VAT, so the company cannot be
registered for VAT.
 Answer
Road Ltd – VAT return for the quarter ended 31 March 2015
£ £
Output VAT 0
Input VAT (0)
Expenses 3,120
Advertising 380
(3,500)
VAT recoverable 3,500

Tutorial note
Input VAT on services incurred prior to registration is subject to a six-
month time limit, so the input VAT of £640 in respect of the advertising
expenditure incurred during April 2014 cannot be recovered.
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