ACCA Applied Skills · Taxation (UK) · The computation of VAT liabilities
Dunmore Ltd made a standard-rated supply and issued an invoice showing a VAT-inclusive total of £14,400. What is the output VAT on this supply, using the 20% standard rate?
The output VAT is £2,400. The VAT-inclusive price of £14,400 divided by 1.2 gives a net price of £12,000, and 20% of that is £2,400. Applying 20% directly to the gross figure would wrongly overstate the VAT.
- A£2,880
- B£2,400Correct
- C£1,440
- D£3,000
Explanation
A VAT-inclusive amount is divided by 1.2 to find the net amount: £14,400 / 1.2 = £12,000. VAT is £12,000 x 20% = £2,400, which equals 1/6 of the gross figure. Taking 20% of £14,400 gives £2,880, which is the wrong base.
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