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ACCA Applied Skills · Taxation (UK) · The computation of VAT liabilities

Brindle Ltd is VAT registered. It entertained UK customers at a restaurant, with a total bill of £360 including VAT at 20%, and entertained its own employees at a staff dinner costing £240 including VAT at 20%. Both bills have valid VAT invoices. What total input VAT can Brindle Ltd recover on these two items?

Brindle Ltd can recover £40. Input VAT on entertaining UK customers is irrecoverable, but VAT on staff entertainment is recoverable. The staff dinner of £240 including VAT contains VAT of £40 using the 20/120 fraction.

  1. A£40Correct
  2. B£100
  3. C£60
  4. D£0

Explanation

VAT on UK customer entertainment is irrecoverable. VAT on staff entertainment is recoverable: £240 x 20/120 = £40. The customer bill's VAT of £60 is blocked. Claiming £100 wrongly includes the customer VAT.

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