THE CHARTERED INSTITUTE OF TAXATION
ADVANCED TECHNICAL
Domestic Indirect Taxation
May 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. Stanley Wilks Ltd ceased to trade on 1 May 2021 and immediately went into liquidation
with the liquidator being ABC LLP. Stanley Wilks Ltd was predominantly a supplier of
construction machinery, however there were some exempt supplies of finance by the
business.
The last VAT return filed by the company was for the quarter ended 28 February 2021.
Stanley Wilks Ltd was part of a VAT group until 30 November 2020, with the
representative member being SW Holdings Ltd (the parent of Stanley Wilks Ltd). Since
1 December 2020 Stanley Wilks Ltd has had a single VAT registration.
The assets of the company will be sold in order to fully pay the company’s creditors,
including an outstanding VAT payment owed to HMRC for the last VAT return submitted
by the company. There are likely to be some costs (plus VAT) incurred by the company
in the period following cessation of the business due to its staff pension plan. Whilst ABC
LLP is satisfied that this VAT would be recoverable, it is uncertain whether Stanley Wilks
Ltd needs to remain VAT registered in order to do so.
The company has significant outstanding debts due to a number of customers not paying
their invoices, therefore an explanation is required in relation to the VAT treatment of
these now that the company is in liquidation. In addition, some of the debts are over four
years old so is has been suggested that credit notes are issued instead of claiming bad
debt relief due to the time limits for claiming VAT bad debt relief. It is expected that the
outstanding debts will be sold to a debt factor by ABC LLP, once the company’s VAT bad
debt relief position has been brought up to date.
It has also been identified that there has been an over declaration of output tax over the
course of the past few years on some protective boots and helmets which should have
been treated as zero-rated.
Requirement:
Explain the VAT implications arising from the cessation of the business of Stanley
Wilks Ltd described above. (15)
Page 2 of 7 AT DOM IND
,2. Three Counties College is a provider of education in Greyton, UK. There is a proposed
development on part of its freehold land, which is currently used as a car park. No options
to tax have been made by the college.
The development will be carried out by a private developer, Riverdale Developments Ltd,
which already owns a larger piece of land next to the car park. The proposal is that the
college will grant Riverdale Developments Ltd a 999-year lease over the car park land
and Riverdale Developments Ltd will then undertake a residential and commercial
development scheme across the car park and the land which it already owns. In return
for the grant of the lease, Riverdale Developments Ltd will construct a new building within
the new development and will grant a 997-year sublease to the college over this building.
The new building will be a standalone one which will be close to, but separate from, the
existing college building.
A peppercorn rent will be charged on the lease and sublease. The college will pay an
annual charge for facilities management services. The college has had an independent
valuation of the car park at £1 million in its current state.
The college will also be responsible for its own fit-out of the new building, at an estimated
cost of £1 million. The college may choose to use Riverdale Developments Ltd’s
contractor for part of this work, particularly in the early stages, but is not required to do
so.
Once complete, the new building will comprise studios and a theatre, to be used for a
mixture of education and ticketed performances.
The college is unaware as to whether Riverdale Developments Ltd intends to opt to tax
the completed development.
Requirement:
Discuss the VAT and Stamp Duty Land Tax implications of the proposed
transactions. (20)
3. Fashion Holdings Ltd is the holding company of a group in the fashion retail industry. It
owns 100% of Bid Co Ltd, which in turn owns 100% of its trading subsidiary, Bargain
Bags Ltd. The share capital of Fashion Holdings Ltd is entirely owned by Frank Private
Equity LLP.
Frank Private Equity LLP is planning to sell Fashion Holdings Ltd and its subsidiaries.
Fashion Holdings Ltd is not registered for VAT and its only income is from dividends. Bid
Co Ltd makes management charges to Fashion Holdings Ltd and Bargain Bags Ltd, and
the directors of the group have their contracts of employment with Bid Co Ltd. Bargain
Bags Ltd makes wholly taxable supplies for VAT purposes, with Bargain Bags Ltd and
Bid Co Ltd being registered as a VAT group.
Costs in the region of £2 million (including VAT) have been incurred to date by Fashion
Holdings Ltd in respect of the sale by Frank Private Equity LLP, such as professional
fees for a vendor due diligence exercise in order to identify any issues which should be
addressed to increase the chances of a successful sale. Additional costs are expected
in the future, before the sale takes place. The contracts for these costs have been
between the suppliers and Fashion Holdings Ltd. Bargain Bags Ltd has also incurred
some additional costs in respect of the planned sale by Frank Private Equity LLP (to
assist in preparing for the sale by clearly identifying business drivers that are critical to
the future performance of the company and identifying issues likely to be raised by
potential buyers). The Bargain Bags group has an interest in finding a new owner in order
to secure its future as a going concern.
Requirement:
Explain the VAT implications of the above transactions. (15)
Page 3 of 7 AT DOM IND
, 4. Petstuff Online Ltd is a UK based online retailer supplying clients in the UK with various
items for pets. HMRC has recently conducted a VAT inspection into Petstuff Online Ltd’s
VAT period ended 31 March 2021.
Petstuff Online Ltd has been notified that HMRC are intending to raise assessments, with
possible penalties, in relation to this and other periods. During the review, Petstuff Online
Ltd provided HMRC with the following information from the return for that period:
Sales: £
Food stuffs 10,000
Animal bedding 20,000
Toys 17,500
Medications/flea treatments 15,000
Cages/huts 25,000
Animal clothes 5,000
Other accessories 7,500
Total sales (excluding VAT) £100,000
VAT due (box 3) £17,000
Based on these figures, HMRC consider that Petstuff Online Ltd has been understating
VAT due to HMRC by 15%. They have not questioned the input tax recovery.
Petstuff Online Ltd sells items for animals of all shapes and sizes including pet foods,
toys, bedding, certain common medications etc. There are fluctuations in sales of the
different categories throughout the year, for example sales of toys and animal clothes
are higher in the build up to Christmas, and sales of flea treatments and other
medications tend to be higher from February up to June.
Included on the VAT file was a review carried out by Petstuff Online Ltd’s previous VAT
adviser seven years ago which identified that some of the rate categorisations were
incorrect as per the table below.
Item Description Rate applied Correction
Food stuffs (including packaged pet food; All standard rated -
animal treats; dog biscuits; horse hay; bird
seed etc.)
Animal bedding All standard rated -
Toys All standard rated -
Medications/flea treatments All exempt Standard rated
Cages/huts All zero-rated Standard rated
Animal clothes (practical jackets and novelty All standard rated -
items)
Other accessories (dog leads/collars etc.) All standard rated -
It appears therefore that HMRC have identified that Petstuff Online Ltd failed to make the
corrective change to the medications/flea treatments.
A member of the Petstuff Online Ltd tax team compiles the relevant documents and
completes the VAT returns each quarter under the direction of the tax manager who
always check the returns before submitting them.
Requirement:
Explain the potential assessment and penalty position for Petstuff Online Ltd in
relation to the VAT inspection. (15)
Page 4 of 7 AT DOM IND
ADVANCED TECHNICAL
Domestic Indirect Taxation
May 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. Stanley Wilks Ltd ceased to trade on 1 May 2021 and immediately went into liquidation
with the liquidator being ABC LLP. Stanley Wilks Ltd was predominantly a supplier of
construction machinery, however there were some exempt supplies of finance by the
business.
The last VAT return filed by the company was for the quarter ended 28 February 2021.
Stanley Wilks Ltd was part of a VAT group until 30 November 2020, with the
representative member being SW Holdings Ltd (the parent of Stanley Wilks Ltd). Since
1 December 2020 Stanley Wilks Ltd has had a single VAT registration.
The assets of the company will be sold in order to fully pay the company’s creditors,
including an outstanding VAT payment owed to HMRC for the last VAT return submitted
by the company. There are likely to be some costs (plus VAT) incurred by the company
in the period following cessation of the business due to its staff pension plan. Whilst ABC
LLP is satisfied that this VAT would be recoverable, it is uncertain whether Stanley Wilks
Ltd needs to remain VAT registered in order to do so.
The company has significant outstanding debts due to a number of customers not paying
their invoices, therefore an explanation is required in relation to the VAT treatment of
these now that the company is in liquidation. In addition, some of the debts are over four
years old so is has been suggested that credit notes are issued instead of claiming bad
debt relief due to the time limits for claiming VAT bad debt relief. It is expected that the
outstanding debts will be sold to a debt factor by ABC LLP, once the company’s VAT bad
debt relief position has been brought up to date.
It has also been identified that there has been an over declaration of output tax over the
course of the past few years on some protective boots and helmets which should have
been treated as zero-rated.
Requirement:
Explain the VAT implications arising from the cessation of the business of Stanley
Wilks Ltd described above. (15)
Page 2 of 7 AT DOM IND
,2. Three Counties College is a provider of education in Greyton, UK. There is a proposed
development on part of its freehold land, which is currently used as a car park. No options
to tax have been made by the college.
The development will be carried out by a private developer, Riverdale Developments Ltd,
which already owns a larger piece of land next to the car park. The proposal is that the
college will grant Riverdale Developments Ltd a 999-year lease over the car park land
and Riverdale Developments Ltd will then undertake a residential and commercial
development scheme across the car park and the land which it already owns. In return
for the grant of the lease, Riverdale Developments Ltd will construct a new building within
the new development and will grant a 997-year sublease to the college over this building.
The new building will be a standalone one which will be close to, but separate from, the
existing college building.
A peppercorn rent will be charged on the lease and sublease. The college will pay an
annual charge for facilities management services. The college has had an independent
valuation of the car park at £1 million in its current state.
The college will also be responsible for its own fit-out of the new building, at an estimated
cost of £1 million. The college may choose to use Riverdale Developments Ltd’s
contractor for part of this work, particularly in the early stages, but is not required to do
so.
Once complete, the new building will comprise studios and a theatre, to be used for a
mixture of education and ticketed performances.
The college is unaware as to whether Riverdale Developments Ltd intends to opt to tax
the completed development.
Requirement:
Discuss the VAT and Stamp Duty Land Tax implications of the proposed
transactions. (20)
3. Fashion Holdings Ltd is the holding company of a group in the fashion retail industry. It
owns 100% of Bid Co Ltd, which in turn owns 100% of its trading subsidiary, Bargain
Bags Ltd. The share capital of Fashion Holdings Ltd is entirely owned by Frank Private
Equity LLP.
Frank Private Equity LLP is planning to sell Fashion Holdings Ltd and its subsidiaries.
Fashion Holdings Ltd is not registered for VAT and its only income is from dividends. Bid
Co Ltd makes management charges to Fashion Holdings Ltd and Bargain Bags Ltd, and
the directors of the group have their contracts of employment with Bid Co Ltd. Bargain
Bags Ltd makes wholly taxable supplies for VAT purposes, with Bargain Bags Ltd and
Bid Co Ltd being registered as a VAT group.
Costs in the region of £2 million (including VAT) have been incurred to date by Fashion
Holdings Ltd in respect of the sale by Frank Private Equity LLP, such as professional
fees for a vendor due diligence exercise in order to identify any issues which should be
addressed to increase the chances of a successful sale. Additional costs are expected
in the future, before the sale takes place. The contracts for these costs have been
between the suppliers and Fashion Holdings Ltd. Bargain Bags Ltd has also incurred
some additional costs in respect of the planned sale by Frank Private Equity LLP (to
assist in preparing for the sale by clearly identifying business drivers that are critical to
the future performance of the company and identifying issues likely to be raised by
potential buyers). The Bargain Bags group has an interest in finding a new owner in order
to secure its future as a going concern.
Requirement:
Explain the VAT implications of the above transactions. (15)
Page 3 of 7 AT DOM IND
, 4. Petstuff Online Ltd is a UK based online retailer supplying clients in the UK with various
items for pets. HMRC has recently conducted a VAT inspection into Petstuff Online Ltd’s
VAT period ended 31 March 2021.
Petstuff Online Ltd has been notified that HMRC are intending to raise assessments, with
possible penalties, in relation to this and other periods. During the review, Petstuff Online
Ltd provided HMRC with the following information from the return for that period:
Sales: £
Food stuffs 10,000
Animal bedding 20,000
Toys 17,500
Medications/flea treatments 15,000
Cages/huts 25,000
Animal clothes 5,000
Other accessories 7,500
Total sales (excluding VAT) £100,000
VAT due (box 3) £17,000
Based on these figures, HMRC consider that Petstuff Online Ltd has been understating
VAT due to HMRC by 15%. They have not questioned the input tax recovery.
Petstuff Online Ltd sells items for animals of all shapes and sizes including pet foods,
toys, bedding, certain common medications etc. There are fluctuations in sales of the
different categories throughout the year, for example sales of toys and animal clothes
are higher in the build up to Christmas, and sales of flea treatments and other
medications tend to be higher from February up to June.
Included on the VAT file was a review carried out by Petstuff Online Ltd’s previous VAT
adviser seven years ago which identified that some of the rate categorisations were
incorrect as per the table below.
Item Description Rate applied Correction
Food stuffs (including packaged pet food; All standard rated -
animal treats; dog biscuits; horse hay; bird
seed etc.)
Animal bedding All standard rated -
Toys All standard rated -
Medications/flea treatments All exempt Standard rated
Cages/huts All zero-rated Standard rated
Animal clothes (practical jackets and novelty All standard rated -
items)
Other accessories (dog leads/collars etc.) All standard rated -
It appears therefore that HMRC have identified that Petstuff Online Ltd failed to make the
corrective change to the medications/flea treatments.
A member of the Petstuff Online Ltd tax team compiles the relevant documents and
completes the VAT returns each quarter under the direction of the tax manager who
always check the returns before submitting them.
Requirement:
Explain the potential assessment and penalty position for Petstuff Online Ltd in
relation to the VAT inspection. (15)
Page 4 of 7 AT DOM IND
