THE CHARTERED INSTITUTE OF TAXATION
ADVANCED TECHNICAL
Domestic Indirect Taxation
November 2021
TIME ALLOWED
3 HOURS 30 MINUTES
• All workings should be shown and made to the nearest month and pound unless the question specifies
otherwise.
• Candidates who answer any law elements in this paper in accordance with Scots law or Northern
Ireland law should indicate this where relevant.
• Scots law candidates may provide answers referring to Land and Buildings Transaction Tax rather
than Stamp Duty Land Tax.
• Except as set out below or indicated by additional information in the question, you may assume that
2020/21 legislation (including rates and allowances) continues to apply for 2021/22 and future years.
1) You MUST assume that the UK remains within the European Union.
2) You MUST ignore all temporary Covid related legislation including furlough, grants, loans and the
reductions in VAT and SDLT rates.
Except in relation to points 1) and 2) above, candidates answering by reference to more recently
enacted legislation or tax cases will not be penalised.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Walkerderm Ltd was incorporated on 1 November 2020, by Dr Laura Walker, a consultant
dermatologist registered with the General Medical Council. Dr Walker is the sole director and
shareholder and delivers all of its services. All of its customers are UK-resident private individuals.
It is not VAT registered.
Walkerderm Ltd makes supplies to two types of patients, as follows:
1) Dermatology customers suffering from skin complaints. The company supplies medical
consultations and prescriptions for goods, if they are needed. This activity generated sales of
£35,000 in the 12 months to 31 October 2021.
2) Customers seeking cosmetic injectable treatments, such as Botox, lip-fillers, etc., which are
injected by Dr Walker at the time of the consultation. Most of these patients also purchase non-
prescription goods such as skin creams and other similar items for after-care, which are paid for
separately. This activity generated sales of £75,000 in the 12 months to 31 October 2021.
Customers often collect their prescription goods at the pharmacy next door to Walkerderm Ltd’s
clinic. When this happens, Walkerderm Ltd receives a fee from the pharmacist. The total earned
from this in the 12 months to 31 October 2021 was £5,000.
If the prescription goods could be dispensed by Walkerderm Ltd directly, this could generate up to
£20,000 of sales, which would be much more profitable than the current arrangement. Accordingly,
Walkerderm Ltd is in discussions with a company called Pharmafix Ltd, which supplies registered
pharmacists to businesses in the medical sector.
Pharmafix Ltd’s directors have advised that no VAT would be due on its supplies of pharmacists to
Walkerderm Ltd, because Pharmafix Ltd will supervise the services provided by the pharmacists
and it will provide insurance cover for their work. The pharmacists would work at Walkerderm Ltd’s
clinic.
The directors also advise that Walkerderm Ltd would be able to zero-rate supplies of prescription
goods if they were dispensed by pharmacists supplied by Pharmafix Ltd, with the added benefit
that Walkerderm Ltd would be able to recover the input tax on those goods.
Walkerderm Ltd now intends changing its business model for dermatology patients. It is planned to
introduce a single annual fee for “holistic skincare”. This will be paid monthly and will cover the cost
of regular consultations with Dr Walker and will include any prescription goods. As these
prescription goods can be applied by the patients themselves, they will be sent directly to their
home address.
Requirement:
Explain, with reference to relevant case law, the VAT treatment of the supplies made by
Walkerderm Ltd and advise on the VAT implications of the Pharmafix Ltd proposal. (15)
,2. Mr and Mrs Tulip operate as a trading partnership which is registered under the Flat Rate Scheme
for VAT. It accounts for VAT on its income using the basic turnover method and applies the 12%
flat rate for “any other activity” to its turnover. The partnership is run from Tulip Farm and has two
main businesses.
The first business is a supervised activity centre known as the Jungle in the Barn. The Jungle in
the Barn offers services in a number of specially designed rooms, built inside the farm’s old barn.
Children’s parties and school groups generate around £50,000 per annum. The partnership also
provides catered parties for stag and hen groups, which generate around £40,000 per annum.
The second business is the operation of a rare breed sheep farm, which generates annual sales of
animals of around £45,000 and around £25,000 in sales of wool and related products. The wool is
a premium product because of the breed of sheep; however, the farm is not very profitable. The
farm is also open for visits by younger children attending parties at the Jungle in the Barn. No extra
charge is made for these visits.
Mr and Mrs Tulip wish to expand both businesses, as follows:
1) They intend to expand the Jungle in the Barn by adding three new “puzzle rooms” for parties of
families and young adults. A specialist company, Roombuild Ltd, will design, construct and fit
these rooms inside the existing floorplan of the barn. Roombuild Ltd will source all of the
materials. The cost will be £100,000 plus VAT. They expect this expansion to increase sales by
£40,000 per annum.
2) They plan to spend £10,000 plus VAT on a marketing campaign to expand the wool business,
and a further £10,000 on more sheep for wool. This will increase farm sales by £20,000 per
annum, of which wool sales will be 50% by value.
In addition to the plans to expand, the partnership has decided to refurbish the Jungle in the Barn
and has asked Roombuild Ltd to add a new entrance to the building and to upgrade and refit the
existing rooms. This is expected to cost £150,000 plus VAT. Roombuild Ltd will provide the building
materials and undertake the work. The partnership will also purchase specialist equipment directly,
costing £18,000 plus VAT.
Requirement:
Discuss how Mr and Mrs Tulip should proceed in relation to the expansion proposals and
refurbishment works including whether they should remain within the Flat Rate Scheme.
(15)
, 3. Mr Mohamed Abdul undertakes property investment and development through two separate
vehicles: Abdul LLP and Abdulco Ltd. The entities are registered together as a VAT group. The
VAT group has no other members.
Abdul LLP
Abdul LLP, which lets residential properties, is owned 60% by Mohamed and 40% by his business
partner, Tariq Imran. It holds a portfolio of eight freehold residential dwellings, which it rents out on
short-term tenancies.
The market values of the residential properties are:
Property Number Market Value
£
1 610,000
2 875,000
3 230,000
4 170,000
5 360,000
6 445,000
7 190,000
8 325,000
Total £3,205,000
Abdulco Ltd
Abdulco Ltd is a construction company and has been providing its services to Abdul LLP at a market
rate for many years. The company also provides services to third parties. Abdulco Ltd is 100%
owned by Mohamed and he is its sole director. Abdulco Ltd also owns a single large commercial
property which it uses as the headquarters of its construction business. Abdulco Ltd built the
headquarters seven years ago, at a cost of £2 million, and recovered all of the VAT incurred.
Retirement
Tariq wants to retire from Abdul LLP and accordingly it has been agreed that Abdul LLP will sell its
residential property portfolio to Abdulco Ltd at market value.
As part of the retirement, Abdul LLP will be wound up and the proceeds will be distributed to each
partner in accordance with their LLP share.
After the transfer, Mohamed intends to manage both the property portfolio and the construction
business from the company headquarters.
The professional costs of the restructuring to be borne by Abdul Ltd are expected to be significant
and the company intends to make an input tax reclaim after the transaction has completed.
In addition to the restructuring, Abdulco Ltd intends to purchase a newly-completed building from
an unconnected third party. The building is made up of a ground-floor shop, with an apartment on
the first floor. The property is currently empty. The total price is £450,000 (plus VAT as applicable),
of which £160,000 relates to the apartment and £290,000 relates to the shop.
Abdulco Ltd intends to let out both parts of the property to third parties.
Requirement:
1) Calculate how much SDLT will be payable on the transaction proposed and set out
the relevant administrative matters. (12)
2) Explain the VAT implications of the above transactions. (8)
Total (20)
ADVANCED TECHNICAL
Domestic Indirect Taxation
November 2021
TIME ALLOWED
3 HOURS 30 MINUTES
• All workings should be shown and made to the nearest month and pound unless the question specifies
otherwise.
• Candidates who answer any law elements in this paper in accordance with Scots law or Northern
Ireland law should indicate this where relevant.
• Scots law candidates may provide answers referring to Land and Buildings Transaction Tax rather
than Stamp Duty Land Tax.
• Except as set out below or indicated by additional information in the question, you may assume that
2020/21 legislation (including rates and allowances) continues to apply for 2021/22 and future years.
1) You MUST assume that the UK remains within the European Union.
2) You MUST ignore all temporary Covid related legislation including furlough, grants, loans and the
reductions in VAT and SDLT rates.
Except in relation to points 1) and 2) above, candidates answering by reference to more recently
enacted legislation or tax cases will not be penalised.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Walkerderm Ltd was incorporated on 1 November 2020, by Dr Laura Walker, a consultant
dermatologist registered with the General Medical Council. Dr Walker is the sole director and
shareholder and delivers all of its services. All of its customers are UK-resident private individuals.
It is not VAT registered.
Walkerderm Ltd makes supplies to two types of patients, as follows:
1) Dermatology customers suffering from skin complaints. The company supplies medical
consultations and prescriptions for goods, if they are needed. This activity generated sales of
£35,000 in the 12 months to 31 October 2021.
2) Customers seeking cosmetic injectable treatments, such as Botox, lip-fillers, etc., which are
injected by Dr Walker at the time of the consultation. Most of these patients also purchase non-
prescription goods such as skin creams and other similar items for after-care, which are paid for
separately. This activity generated sales of £75,000 in the 12 months to 31 October 2021.
Customers often collect their prescription goods at the pharmacy next door to Walkerderm Ltd’s
clinic. When this happens, Walkerderm Ltd receives a fee from the pharmacist. The total earned
from this in the 12 months to 31 October 2021 was £5,000.
If the prescription goods could be dispensed by Walkerderm Ltd directly, this could generate up to
£20,000 of sales, which would be much more profitable than the current arrangement. Accordingly,
Walkerderm Ltd is in discussions with a company called Pharmafix Ltd, which supplies registered
pharmacists to businesses in the medical sector.
Pharmafix Ltd’s directors have advised that no VAT would be due on its supplies of pharmacists to
Walkerderm Ltd, because Pharmafix Ltd will supervise the services provided by the pharmacists
and it will provide insurance cover for their work. The pharmacists would work at Walkerderm Ltd’s
clinic.
The directors also advise that Walkerderm Ltd would be able to zero-rate supplies of prescription
goods if they were dispensed by pharmacists supplied by Pharmafix Ltd, with the added benefit
that Walkerderm Ltd would be able to recover the input tax on those goods.
Walkerderm Ltd now intends changing its business model for dermatology patients. It is planned to
introduce a single annual fee for “holistic skincare”. This will be paid monthly and will cover the cost
of regular consultations with Dr Walker and will include any prescription goods. As these
prescription goods can be applied by the patients themselves, they will be sent directly to their
home address.
Requirement:
Explain, with reference to relevant case law, the VAT treatment of the supplies made by
Walkerderm Ltd and advise on the VAT implications of the Pharmafix Ltd proposal. (15)
,2. Mr and Mrs Tulip operate as a trading partnership which is registered under the Flat Rate Scheme
for VAT. It accounts for VAT on its income using the basic turnover method and applies the 12%
flat rate for “any other activity” to its turnover. The partnership is run from Tulip Farm and has two
main businesses.
The first business is a supervised activity centre known as the Jungle in the Barn. The Jungle in
the Barn offers services in a number of specially designed rooms, built inside the farm’s old barn.
Children’s parties and school groups generate around £50,000 per annum. The partnership also
provides catered parties for stag and hen groups, which generate around £40,000 per annum.
The second business is the operation of a rare breed sheep farm, which generates annual sales of
animals of around £45,000 and around £25,000 in sales of wool and related products. The wool is
a premium product because of the breed of sheep; however, the farm is not very profitable. The
farm is also open for visits by younger children attending parties at the Jungle in the Barn. No extra
charge is made for these visits.
Mr and Mrs Tulip wish to expand both businesses, as follows:
1) They intend to expand the Jungle in the Barn by adding three new “puzzle rooms” for parties of
families and young adults. A specialist company, Roombuild Ltd, will design, construct and fit
these rooms inside the existing floorplan of the barn. Roombuild Ltd will source all of the
materials. The cost will be £100,000 plus VAT. They expect this expansion to increase sales by
£40,000 per annum.
2) They plan to spend £10,000 plus VAT on a marketing campaign to expand the wool business,
and a further £10,000 on more sheep for wool. This will increase farm sales by £20,000 per
annum, of which wool sales will be 50% by value.
In addition to the plans to expand, the partnership has decided to refurbish the Jungle in the Barn
and has asked Roombuild Ltd to add a new entrance to the building and to upgrade and refit the
existing rooms. This is expected to cost £150,000 plus VAT. Roombuild Ltd will provide the building
materials and undertake the work. The partnership will also purchase specialist equipment directly,
costing £18,000 plus VAT.
Requirement:
Discuss how Mr and Mrs Tulip should proceed in relation to the expansion proposals and
refurbishment works including whether they should remain within the Flat Rate Scheme.
(15)
, 3. Mr Mohamed Abdul undertakes property investment and development through two separate
vehicles: Abdul LLP and Abdulco Ltd. The entities are registered together as a VAT group. The
VAT group has no other members.
Abdul LLP
Abdul LLP, which lets residential properties, is owned 60% by Mohamed and 40% by his business
partner, Tariq Imran. It holds a portfolio of eight freehold residential dwellings, which it rents out on
short-term tenancies.
The market values of the residential properties are:
Property Number Market Value
£
1 610,000
2 875,000
3 230,000
4 170,000
5 360,000
6 445,000
7 190,000
8 325,000
Total £3,205,000
Abdulco Ltd
Abdulco Ltd is a construction company and has been providing its services to Abdul LLP at a market
rate for many years. The company also provides services to third parties. Abdulco Ltd is 100%
owned by Mohamed and he is its sole director. Abdulco Ltd also owns a single large commercial
property which it uses as the headquarters of its construction business. Abdulco Ltd built the
headquarters seven years ago, at a cost of £2 million, and recovered all of the VAT incurred.
Retirement
Tariq wants to retire from Abdul LLP and accordingly it has been agreed that Abdul LLP will sell its
residential property portfolio to Abdulco Ltd at market value.
As part of the retirement, Abdul LLP will be wound up and the proceeds will be distributed to each
partner in accordance with their LLP share.
After the transfer, Mohamed intends to manage both the property portfolio and the construction
business from the company headquarters.
The professional costs of the restructuring to be borne by Abdul Ltd are expected to be significant
and the company intends to make an input tax reclaim after the transaction has completed.
In addition to the restructuring, Abdulco Ltd intends to purchase a newly-completed building from
an unconnected third party. The building is made up of a ground-floor shop, with an apartment on
the first floor. The property is currently empty. The total price is £450,000 (plus VAT as applicable),
of which £160,000 relates to the apartment and £290,000 relates to the shop.
Abdulco Ltd intends to let out both parts of the property to third parties.
Requirement:
1) Calculate how much SDLT will be payable on the transaction proposed and set out
the relevant administrative matters. (12)
2) Explain the VAT implications of the above transactions. (8)
Total (20)
