THE CHARTERED INSTITUTE OF TAXATION
APPLICATION AND PROFESSIONAL SKILLS
VAT and Other Indirect Taxes
November 2021
TIME ALLOWED
3 HOURS 30 MINUTES
• In order to secure a pass in this exam, you will be required to demonstrate competence in each of
three skills.
You will be assessed across your answer as a whole for Structure. A pass or fail grade will be
awarded.
You will be assessed for competence in a number of broad topics for the following skills:
➢ Identification and Application
➢ Relevant Advice and Substantiated Conclusions
For each topic for each of these two skills, a grade will be awarded. The grades for those topics will
be weighted and averaged to produce a final grade for each skill of 0, 1, 2, 3 or 4. A grade of 3 or 4
is required to demonstrate competence.
• 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.
,You are Alex Bruce, tax consultant in Laidlaw Wallace LLP, a firm of Chartered Tax Advisers. You have
received a letter (EXHIBIT A) from Rory Wiltshire, the Finance Director of an existing client, the Cerebri
Cura Trust. He is seeking your advice on the options under consideration to complete the construction of
the Trust’s new Head Office.
The following exhibits are provided to assist you:
EXHIBIT A: Letter from Rory Wiltshire
EXHIBIT B: Summary of Terms agreed with RG Assurance plc
EXHIBIT C: Proposed occupancy by staff of the new Head Office building
EXHIBIT D: Summary of projected income 2022/23 and VAT status of the income streams
EXHIBIT E: Pre-seen information
Requirement:
Write a report addressed to the Board explaining the tax implications and your recommendations
in relation to the construction of the Trust’s Head Office.
Continued
Page 2 of 11 APS VAT
,Continuation
EXHIBIT A
Letter from Rory Wiltshire
A Bruce Cerebri Cura Trust
Laidlaw Wallace LLP Wellesley House
100 Eastbank 1 Wellington Street
Bath Bristol
BA1 4TT BT2 8RR
1 November 2021
Dear Alex
Construction of the new Head Office
I refer to our discussion yesterday. As agreed, I have summarised the options under consideration by the
Board for the construction of our new Head Office, along with parking facilities.
Background
The suitability of our current Head Office is a vexed issue which has been the subject of ongoing
discussions over very many years. It is now quite dilapidated and no longer fit for purpose. We decided
in April 2017 to construct a new office and car park on surplus land alongside the existing office which will
be demolished on completion of the new building. We acquired this surplus land in 1983 at a cost of
£25,000 in anticipation of possible expansion.
The planning of the project has taken a considerable amount of time, with local objections to the height
and size of the new building, but preliminary construction work finally commenced this August, with work
now underway on construction of the foundations; the main contractor being XYZ Developments Ltd.
In the period April 2017 to July 2021, we incurred £400,000, plus VAT on advisory and planning fees. We
recovered 33% of the VAT (£26,400) on the basis that the building will be used to provide both standard
rated and VAT exempt services. On 31 August 2021 we opted to tax the site of the new building and car
park to reclaim the balance of the VAT, but we have not yet claimed credit for this on our VAT returns.
Current Proposal – Lease and Leaseback
The current proposal is to construct a free-standing, three storied building and car park with funding
provided by way of a lease and leaseback. I have enclosed a Summary of Terms (EXHIBIT B).
When the arrangements were agreed, it was expected that it would cost £9.2 million to complete the
building and car park but we now expect the final cost will be £9.5 million, inclusive of professional fees
of £1.25 million and all costs to be reimbursed by RG Assurance plc. All these sums are exclusive of
VAT.
It was envisaged that the headlease would be granted to RG Assurance plc prior to commencement of
the building works in August. Unfortunately, this never happened. The grant will now occur on 3 January
2022. RG Assurance plc will reimburse the Trust £550,000, representing the pre-July 2021 costs of
£400,000 (net of VAT), plus £150,000 (net of VAT) on construction and professional services expected to
be expended thereafter until 3 January 2022.
On completion of the works, the Trust will take an underlease on the building and car park. Originally the
rent was going to be £604,000 but it has now been increased to reflect the increase in costs which RG
Insurance plc will incur (3(b) of the Summary of Terms).
The Trust will occupy two floors of the building, with the third floor to be sublet at an annual rent of
£200,000. This sublet will be preferably to another charity, so we are not intending to charge VAT on the
rent.
The heads of terms require the Trust to register and comply with the Construction Industry Scheme. I
don’t understand the need for this given that the Trust is a charity and there will be no mark-up on the
services supplied to RG Assurance plc in our capacity as the developer. Also, we consider that the grant
of the headlease will not represent a trading activity chargeable to tax.
Continued
Page 3 of 11 APS VAT
, Continuation
Alternative Proposal – Self Funded
Whilst it was anticipated that in the longer term we would require all three floors, as a result of increased
homeworking we are now reconsidering whether a three-storied building is needed. Although planning
permission has been granted for the current proposal, objections raised during the consultation process
suggest that it would be easy to get a revised permission for a smaller building. This would be a two-
storied building with the same footprint as that currently in progress and would be for the sole use of the
Trust.
A smaller building will alleviate the need to find a tenant; ameliorate some of the local residents’ concerns
and allow for consideration of an alternative funding option. Also, concern has been expressed as to the
suitability of RG Assurance plc as a funding partner due to its overseas investment policies.
It is estimated that the redesigned building will cost £6.75 million, excluding VAT, but inclusive of
professional fees of £880,000 and the costs identified above of up to £550,000.
The cost of such a building (including non-recoverable VAT) will be financed by the Trust from fixed
interest external loans. Based on the initial estimate of a total borrowing requirement of £6.75 million plus
VAT, we believe the repayments over 30 years will be £492,500 per annum.
In relation to this proposal, you may proceed on the basis that 33% of VAT incurred on the works will be
recovered as attributable to the Trust’s taxable supplies.
I enclose projections firstly, of the usage of the new office by staff (EXHIBIT C) and secondly, a summary
of projected income for the financial year 2022/23, together with the VAT status of the income streams
ordinarily applied by the Trust (EXHIBIT D).
Can you let me have your thoughts please on which of the two options might be best? I look forward to
hearing from you as soon as possible.
Kind regards
Rory Wiltshire
Finance Director
Continued
Page 4 of 11 APS VAT
APPLICATION AND PROFESSIONAL SKILLS
VAT and Other Indirect Taxes
November 2021
TIME ALLOWED
3 HOURS 30 MINUTES
• In order to secure a pass in this exam, you will be required to demonstrate competence in each of
three skills.
You will be assessed across your answer as a whole for Structure. A pass or fail grade will be
awarded.
You will be assessed for competence in a number of broad topics for the following skills:
➢ Identification and Application
➢ Relevant Advice and Substantiated Conclusions
For each topic for each of these two skills, a grade will be awarded. The grades for those topics will
be weighted and averaged to produce a final grade for each skill of 0, 1, 2, 3 or 4. A grade of 3 or 4
is required to demonstrate competence.
• 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.
,You are Alex Bruce, tax consultant in Laidlaw Wallace LLP, a firm of Chartered Tax Advisers. You have
received a letter (EXHIBIT A) from Rory Wiltshire, the Finance Director of an existing client, the Cerebri
Cura Trust. He is seeking your advice on the options under consideration to complete the construction of
the Trust’s new Head Office.
The following exhibits are provided to assist you:
EXHIBIT A: Letter from Rory Wiltshire
EXHIBIT B: Summary of Terms agreed with RG Assurance plc
EXHIBIT C: Proposed occupancy by staff of the new Head Office building
EXHIBIT D: Summary of projected income 2022/23 and VAT status of the income streams
EXHIBIT E: Pre-seen information
Requirement:
Write a report addressed to the Board explaining the tax implications and your recommendations
in relation to the construction of the Trust’s Head Office.
Continued
Page 2 of 11 APS VAT
,Continuation
EXHIBIT A
Letter from Rory Wiltshire
A Bruce Cerebri Cura Trust
Laidlaw Wallace LLP Wellesley House
100 Eastbank 1 Wellington Street
Bath Bristol
BA1 4TT BT2 8RR
1 November 2021
Dear Alex
Construction of the new Head Office
I refer to our discussion yesterday. As agreed, I have summarised the options under consideration by the
Board for the construction of our new Head Office, along with parking facilities.
Background
The suitability of our current Head Office is a vexed issue which has been the subject of ongoing
discussions over very many years. It is now quite dilapidated and no longer fit for purpose. We decided
in April 2017 to construct a new office and car park on surplus land alongside the existing office which will
be demolished on completion of the new building. We acquired this surplus land in 1983 at a cost of
£25,000 in anticipation of possible expansion.
The planning of the project has taken a considerable amount of time, with local objections to the height
and size of the new building, but preliminary construction work finally commenced this August, with work
now underway on construction of the foundations; the main contractor being XYZ Developments Ltd.
In the period April 2017 to July 2021, we incurred £400,000, plus VAT on advisory and planning fees. We
recovered 33% of the VAT (£26,400) on the basis that the building will be used to provide both standard
rated and VAT exempt services. On 31 August 2021 we opted to tax the site of the new building and car
park to reclaim the balance of the VAT, but we have not yet claimed credit for this on our VAT returns.
Current Proposal – Lease and Leaseback
The current proposal is to construct a free-standing, three storied building and car park with funding
provided by way of a lease and leaseback. I have enclosed a Summary of Terms (EXHIBIT B).
When the arrangements were agreed, it was expected that it would cost £9.2 million to complete the
building and car park but we now expect the final cost will be £9.5 million, inclusive of professional fees
of £1.25 million and all costs to be reimbursed by RG Assurance plc. All these sums are exclusive of
VAT.
It was envisaged that the headlease would be granted to RG Assurance plc prior to commencement of
the building works in August. Unfortunately, this never happened. The grant will now occur on 3 January
2022. RG Assurance plc will reimburse the Trust £550,000, representing the pre-July 2021 costs of
£400,000 (net of VAT), plus £150,000 (net of VAT) on construction and professional services expected to
be expended thereafter until 3 January 2022.
On completion of the works, the Trust will take an underlease on the building and car park. Originally the
rent was going to be £604,000 but it has now been increased to reflect the increase in costs which RG
Insurance plc will incur (3(b) of the Summary of Terms).
The Trust will occupy two floors of the building, with the third floor to be sublet at an annual rent of
£200,000. This sublet will be preferably to another charity, so we are not intending to charge VAT on the
rent.
The heads of terms require the Trust to register and comply with the Construction Industry Scheme. I
don’t understand the need for this given that the Trust is a charity and there will be no mark-up on the
services supplied to RG Assurance plc in our capacity as the developer. Also, we consider that the grant
of the headlease will not represent a trading activity chargeable to tax.
Continued
Page 3 of 11 APS VAT
, Continuation
Alternative Proposal – Self Funded
Whilst it was anticipated that in the longer term we would require all three floors, as a result of increased
homeworking we are now reconsidering whether a three-storied building is needed. Although planning
permission has been granted for the current proposal, objections raised during the consultation process
suggest that it would be easy to get a revised permission for a smaller building. This would be a two-
storied building with the same footprint as that currently in progress and would be for the sole use of the
Trust.
A smaller building will alleviate the need to find a tenant; ameliorate some of the local residents’ concerns
and allow for consideration of an alternative funding option. Also, concern has been expressed as to the
suitability of RG Assurance plc as a funding partner due to its overseas investment policies.
It is estimated that the redesigned building will cost £6.75 million, excluding VAT, but inclusive of
professional fees of £880,000 and the costs identified above of up to £550,000.
The cost of such a building (including non-recoverable VAT) will be financed by the Trust from fixed
interest external loans. Based on the initial estimate of a total borrowing requirement of £6.75 million plus
VAT, we believe the repayments over 30 years will be £492,500 per annum.
In relation to this proposal, you may proceed on the basis that 33% of VAT incurred on the works will be
recovered as attributable to the Trust’s taxable supplies.
I enclose projections firstly, of the usage of the new office by staff (EXHIBIT C) and secondly, a summary
of projected income for the financial year 2022/23, together with the VAT status of the income streams
ordinarily applied by the Trust (EXHIBIT D).
Can you let me have your thoughts please on which of the two options might be best? I look forward to
hearing from you as soon as possible.
Kind regards
Rory Wiltshire
Finance Director
Continued
Page 4 of 11 APS VAT
