Skip to content

ACCA Strategic Professional · Advanced Taxation (UK) · Value added tax

Brightway Ltd is VAT registered and makes taxable supplies of £400,000 and exempt supplies of £100,000 (both figures exclude VAT). Input VAT for the period is £30,000 on costs directly attributable to taxable supplies, £5,000 on costs directly attributable to exempt supplies and £10,000 on residual costs. Assume the standard partial exemption method based on the value of supplies and ignore the de minimis rules and any rounding up. How much input VAT is recoverable?

Recoverable input VAT is £38,000. Directly attributable taxable input VAT of £30,000 is fully recoverable, and residual VAT of £10,000 is recovered at the 80% taxable supplies proportion, giving £8,000. The £5,000 attributable to exempt supplies is irrecoverable.

  1. A£38,000Correct
  2. B£30,000
  3. C£43,000
  4. D£40,000

Explanation

Taxable proportion is 400,000/500,000 = 80%. Residual recoverable is £10,000 x 80% = £8,000. Total recoverable is £30,000 + £8,000 = £38,000. £43,000 wrongly treats the exempt-attributable input VAT as recoverable.

Did you get it right without looking?

One question tells you little. A timed set on Value added tax shows your real accuracy, how long you take and where you lose marks.

Practise Value added taxFree diagnostic mock

More Value added tax questions